Hot answers tagged equity
415
This is such a common question here and elsewhere that I will attempt to write the world's most canonical answer to this question. Hopefully in the future when someone on answers.onstartups asks how to split up the ownership of their new company, you can simply point to this answer.
The most important principle: Fairness, and the perception of fairness, is ...
41
I'm sure some folks get by with unequal splits. But I don't think it works for most partnerships. Someone will inevitably be upset because someone is getting more. Find a true spouse or two for your startup. If you can't find people that want to bleed for it like you, than go to bat without partners. Don't bring on people who just care a little now, and ...
26
Unfortunately I have seen this situation and sentiments hundreds of times (as an entrepreneur, advisor, mentor, educator ... and developer). Most of the time this is due to the developer or engineer overvaluing their contribution or value to the new venture. Yes. This probably means you, too. OK. Let it sink in for a moment, and just consider my ...
22
Developer, offered share in small startup company in return for large rate reduction - advice needed
I think the share might be way too low.
Let's say you sacrifice $50K of pay per years for 2 years, or $100K. Is $100K less than 5% of the current value of the asset and company? If not, then you are just cheap labor.
Here is a set of formulas I use to keep the discussion real:
What is the probability of success? Realistically 10%. So you have a 10% ...
22
Ha. It's actually very easy: issue the same number of shares to all three founders.
For instance, each founder gets one million shares. Obviously, they all have the same chunk of the company (one third). And yes, it can't be expressed as a finite number in percentages, but that's ok, because what matters is the number of stocks.
20
View your startup as going to war. You will be fighting in the trenches together with the people you bring along.
See the equity split as how you divide the bullets between yourselves.
If there is any chance that one of the founders will take his bullets and shoot you in the back he shouldn't be given any bullets in the first place.
If you believe that ...
19
One piece of advice I frequently give startup founders: don't try to invent two things at once.
You've got enough problems inventing a new product which you are trying to launch. That is the entrepreneurial risk you are taking. Don't risk the whole thing by also trying to invent a new way to allocate equity.
You're going to need every brain cell you've ...
19
In my opinion, these figure seem very very investor-friendly.
Basically, you're valuing your business at only 100K. It's hard to tell if that valuation is in line with your business but a 100K valuation is pretty low. If ordinary shares in the UK are the equivalent of common stock in the US, then that point is good for you. But I'm pretty sure you'll also ...
16
This is hard to write an answer to, really. On the face of it, going by what you describe, yes it would seem that you're in the hands of a predator.
Clearly, since you and your husband are talking about the business partner in these terms, there is a problem. If nothing else, then there is a loss of trust so severe that it threatens the business.
You must ...
16
Outside of a brief moment of happiness from writing what may be a satisfyingly nasty/angry/sarcastic reply, nothing positive will come of it.
If he is a professional, he will do none of the options you list above, but you on the other hand will have succeeded in burning a bridge or possibly making an enemy.
Bottom-line, if you didn't care about what he ...
15
At a basic level, with that shareholding configuration, they can band together and out vote you 60% to 40%. This is a concern but relationships and getting everyone onboard with direction before discovering it is the wrong choice should cover this.
You need to match this against "where would I be without it".
I would be trying for 40% to them, holding ...
14
Just wanted to give you couple of things to consider:
Don't gamble what you can't afford to lose (been with startups for 12+ yrs, if you tell me it is not constant gamble, I will call you blind)
Valuations are fantasy. One day the company could be "worth" $4MM, next day - $0.
Treat options like a bonus. If you can't live on the base salary, go find another ...
14
I'll take a contrarian approach. If 3 out of 4 founders say they don't value your future contributions, you should take a hard look in the mirror and ask why.
What parts exactly did you contribute? Are you a developer? I'd guess not. Designer? Marketing? If you were great at brainstorming the initial idea, but that's all you did in 5 weeks, then that's a ...
13
I've been in similar situations.
Situation 1: I had an offer to join YCombinator company. I got the offer shortly after they were accepted to YCominator, but before they had a product, customers, or any other funding. I negotiated the offer to ~23% of the company (which was an equal share as the founders) and zero salary (not even living expenses).
...
12
Developer, offered share in small startup company in return for large rate reduction - advice needed
First of all, your motivation is key. If you find the product especially interesting, and you have a long-term dream of doing a startup, then read further. Otherwise, decline politely.
Next: two years is way too long. Do not commit to more than 3 to 6 months of your life to a venture that doesn't pay the bills. If you love it, you can always extend.
...
12
Share dilution is when the percentage of a company's stock that you hold is decreased through the issuance of more shares or the company issuing convertible securities. While the absolute number of shares that you hold remains the same; the total number of outstanding shares is increased, thereby reducing the percentage of shares you hold.
As an employee, ...
11
Tell him that you would love to have him be 50%-50% with you (i.e. you have seen the light and changed your mind). But because the company is worth $X million he would need to invest 50% of that (I heard that it is exactly what Eric Schmidt did for Google). Otherwise you don't mind giving him a market salary and because he absolutely rocks you will give him ...
11
It all depends on what you mean by "fair." Here's a few mental experiments to help you think about it:
It's crunch time. You're down to your last four months of burn, you both have to make significant sacrifices or the company dies. Will the equity distribution you've come up with help the company survive?
You're succeeding beyond your wildest ...
11
cover my expenses but not to actually pay me or offer any equity
What's that -- they pay you a salary which, after tax, just matches your minimum living expenses?
Well, it doesn't matter, this deal is IMHO still broken beyond repair. Either you are
a co-founder, in which case foregoing salary can be reasonable (because you get major equity)
or your ...
11
I am a developer and get offers like that on a weekly basis. I do not consider most of them. Reason: I have many ideas of my own I want to develop. You can have ideas on every corner and in all of the cases one cannot say if one is working or not.
Now, why should a developer work for free?
You need to give good reasons for that, because if one works for ...
10
Yes, it is possible. But whether or not it's a good idea is another matter.
First off, if you aggressively compensate sales people based on their closed deals, then you risk getting bad sales (i.e. unstructured customers who have been promised .. everything). And afterwards it's very hard to tell if the sales person knew he was making a bad sale, and ...
10
I can't give you an un-biased answer, because I only have your story to go on, and your story is biased by you. Having said that, your description of the situation seems well researched and reasonable.
I've put in about a 200 hours (compared to 30 for B and 60 for A)
These numbers seem quite low to me. Did you guys just start out a few weeks ago? If ...
10
If you are a 50/50 partnership then you have the usual options to manage conflicts that cannot be resolved:
Buyout your partner;
Terminate the partnership;
Dispute resolution (anything the two of you agree to should be fine, provided it does not run afoul of your jurisdiction's laws for your entity type but I would like to recommend mediate and alternative ...
10
It sounds really messy and awkward - and pretty unprofessional.
If it was me, (and I am presuming the business hasn't traded and there are no significant assets) I would get out for the following reasons:
The business doesn't have much of a future if it doesn't have a solid team.
If the business was founded for personal reasons rather than solid business ...
10
20% sounds like way too much, considering what you are getting in exchange is unclear. I'd give 20% to someone who is my co-founder and will take a very active role in running the company.
If you want, give 20% with vesting over 4 years. So most likely, you'll get rid of this non-performing academic and all they'll have is 5% (still too much in my opinion).
...
10
Since there is no written agreement, see if he'll take a deal where he just walks away not having to pay the money currently owed and consider it a wash. Since he agreed to take part in a venture, he was agreeing to the risk which is now manifested in the money he has invested, and in the scenario I envision, has lost. I do not believe that you should have ...
10
This is going to be blunt - sorry :-)
8-10% is not fair and not a good deal. Because you've already given the CTO a different figure that they have been working under for the last four months.
You change things from under them now then you're:
a) Morally in the wrong as far as I'm concerned
b) (Obligatory not a lawyer warning - go ask a real lawyer) ...
9
Don't give away your equity without careful thought, planning and an attorney. It complicates everyone's life in so many ways if it is not done correctly.
A much simpler way is to profit share with key employees. Setting aside a percentage of profits to be split among key employees shows generous gratitude and gives them a stake in the past and present ...
9
SALARY
In Silicon Valley or New York, base salary around $80,000 - $100,000. Look at Salary.com, figure out the median salary for your position in your market, then subtract 10% because it's a startup and you're getting equity.
EQUITY
As far as equity, anywhere from 0.3% to 1.5% would make sense, depending on:
the number of people that they are planning ...
9
If you idea is any good, and the graphic designer has any brains, he should jump at the chance. Which is to say, if you pay equity for something as readily available as graphics designer for a shorter project, then you're way overpaying.
And the irony is, the graphics designer may not be impressed at all, for exactly the reason you give, they often get ...
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