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I have been building a SAAS product for a vertical industry for the last two years. The product is now pretty mature. As a geek my sales and marketing skills are pretty rubbish so am are looking at getting a new 'co-founder' who is an expert in sales, but unsure what equity would be considered fair. I am considering 60/40 split. For a startup that already has a product that would seem pretty generous. If we were starting from scratch obviously it would be 50/50.

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Is your question a 60-40 split fair? – Global nomad May 27 '12 at 11:38
Yes, sorry if I was waffling a but. Trying to give some background. – Craig May 27 '12 at 11:51
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Whatever you do, make sure that his equity is subject to: (1) Vesting, (2) the company's right to buy back his vested shares if he leaves, and (3) a right of first refusal to buy them if he proposes to transfer to somebody else. – Chris Fulmer May 27 '12 at 17:11

1 Answer

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Before deciding on a 60/40 split or awarding any equity, you may want to consider the following:

  1. Equity is a way, but not the only way to reward someone who brings in sales. Performance bonus based on sales brought in is another way. If your sales cycle is longer than a month, I'd recommend bonus calculated from quarterly recognition of sales to encourage consistent sales performance each quarter. You may also want to add to the performance bonus by sales growth quarter year-on-year to encourage retention. These helps also to gauge the salesperson's confidence of delivering sales as you're rewarding for consistency and not one-time-hits.
  2. If you're planning to attract future investors, equity that has been awarded may be diluted. Will the salesperson agree to that or will he/she (as an equity holder) prevent more equity injection in the future?
  3. Why not given stock options instead of stock awards? This encourages performance and not promise/potential of performance.

Hope this helps.

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