(background - few startups, business side)
This is a situation that I've encountered a few times before. Seems not uncommon among startups.
You're kicking around an idea - let's say there are 2-3 people that are heavily involved. But there are a few other people that are pretty involved as well.
The bottom line is: you don't know who in the future is going to be heavily involved and who is making a contribution now (even an important one) but is going to be a footnote later.
Ideally, you'd like to: - Form the company, get all the legal docs in order - Award the early people a small amount of equity (on order of 5% or less each, say a total of 20%) - Leave open decisions re the balance of the equity (say 80%)
Benefits - Rewards early people without having to make value judgments on contributions (ie, Sam's design was worth x%, but Jeff's domain was worth y%) - Avoids hard conversations down the road (like: 'Sorry Sue, originally we gave you 20% but you really haven't been pulling your weight, so we're gonna dilute you blah blah blah) - Get your legal house in order earlier than you otherwise might - Gives incentive for continuing contributions - Leaves the door open for other founders, leaves your structure more flexible
Complications - Decision making - obviously you can't avoid all the hard issues; the LLC agreement needs to cover how major decisions are made. Which includes the future equity distribution - Papering - not sure how you'd draw this up - Other things I haven't thought of
Encountered this kind of situation? Wish there was an answer? Curious whether this is a common issue. And of course, whether there's an answer.