Hot answers tagged equity
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 ...
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 ...
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
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
It is a common misconception of entrepreneurs that control flows from owning a majority of the stock.
Stock ownership and control are separate and independent.
Control is determined by the legal documents you draw up when you form the company. The most important documents are the company bylaws, which determine how the company operates, and the shareholder ...
8
If you have no legal agreement that specifies what happens in this case you will need to do several things:
First: Offer him a fair price to buy out his shares.
If he does not accept:
Consult an attorney to see if the following is legal in your juristiction.
Let him know you are going to dilute his shares of stock, and repeat your original offer. If he ...
7
Sorry to hear of your situation.
I'd be concerned about the company flipping its assets into a newco and wiping the slate clean - difficult with a pre-existing investor, but theoretically possible.
I'd also review the shareholders agreements regarding drag along / tag along rights - they could be used for not so favorable purposes.
7
Sadly for you it doesn't work like this. These guys have the vision and the money, so all they need is the capability to deliver which they can get from any decent developer. Yes, you built it, but just like when a property developer gets builders in to build that fabulous house, it isn't the builder that takes a big slice of the profits. You just pay the ...
7
Considering you are going to get "near market value" for your salary for your role, you are in a pretty good position where it isn't costing you much.
A lot of people would take a 10% - 20% pay cut just to do work they love, so if you think you would really enjoy this role then that might be as good a deciding factor as any. You can then consider the ...
6
The specific arrangement can work, you can basically say your getting royalities for your contribution. Same as inventors get royalties for companies using their patented designs to build products.
Typically I have seen values of 5% to 8% per product sold.
DO NOT do on profits. Because profits can be manipulated by accountants, do it on units sold. They ...
5
Go see a good lawyer.
There is nobody here who can answer your question. It all depends on the exact wording of that "collaborator's agreement" you mention, and relevant legal precedence in your jurisdiction.
In general it's extremely unusual to retroactively attempt to take back ownership. Think about what that could do to your reputation, and think about ...
5
Equity means shares. I'll start from the beginning.
A share is basically a document saying that you are a partial owner of a company. The more shares you have in the company the more of it you own. Owning shares makes you a shareholder. You make money from your shares from:
Receiving a per-share dividend that is paid by the company at regular ...
5
Alfred needs to offer to buy out Bernard. They both assumed equal risk (which is what the initial equity is for) at the start.
Without Bernard's help that idea wouldn't have become a product.
I think Alfred is justified in his commissions. He's the sales guy, of course he gets commissions. I think his reasoning for the raise of his side of the equity (he ...
5
Yes, 7% is fair, given that you will have a very generous based compensation as well.
I'm not sure what the risk is. You sound like the kind of person who could find another CTO job in 10 minutes, so the absolute worst case scenario is that the new company fails and you have to spend 10 minutes getting a new job.
4
That can be a tough situation.
Typically vesting is determined ahead of time to account for the sweat equity. What vesting means, however, is that unless the founder stays for the entire schedule, the company buys back the stock (note: legally the company loses the right to buy the stock as vesting progresses).
Given your example:
Imagine the 3 of you ...
4
Yes, you are expecting a lot. Sometimes it works, sometimes it fails miserably and bridges are burnt. Be very careful choosing your new partner, and choosing fair terms to work within.
Unfortunately, most developers worth anything will not work for free unless the idea and team is incredible. See my thoughts here for a bit of a rant: Expanding development ...
4
If you're paid a competitive salary then any equity you get is a bonus.
It sounds quite simple, you are just working a job that you get paid for.
The reason people give equity is to compensate lack of salary. If the founder wants to pay you instead of giving equity, well I don't see a problem with that.
4
There are few points you should always remember:
The co founders who has the important business contacts( like buyers, retailers, Investors and clients) will be known as "your Organization". Nobody will know your existence if you never talk to anyone not related to your company tightly (e.g. regular customers, clients, outsource partners, etc.). Although ...
4
I'll recommend you separate the role of legal counsel from investor so you get objective legal advice to prevent conflict of interest. I've heard of inexperienced entrepreneurs who ended in a jam because they signed non-diluting terms with their legal counsel (who was also an investor).
No harm with trust, but better to have independent advocates and ...
4
Being an "idea person" I can assure you that ideas, in and of themselves, are worth very little. It sounds to me like his primary contribution was his idea which doesn't mean much until there's actually a business behind it. If there was an incorporation and a legal agreement then this very much depends on the agreement. If not, he technically doesn't have ...
4
Assuming you own N percent of the company you will be default get ... nothing from your ownership. Nothing.
Ownership most commonly results in money being paid out in case of:
A decision to pay Dividends of profits.
A Liquidity event - which requires a willing buyer.
(If you don't recognize those words, then follow the above links.)
About dividends:
...
4
If I were the other members of the team I would be interested in buying you out.
A reasonable number might be $30,000?
You could have earned $60,000 at a normal job, but instead you took a risk and you are now folding your hand - so I wouldn't expect you to get paid more than you would have if you took the safe route.
Also, you are leaving the company ...
4
I see two huge warning flags -- and will get to them in a second.
Jordan Cooper once wrote a very informative blog post with the valuation ranges he saw in NYC. Quoting his post:
Still at your old job
You have an idea you’ve been thinking about, been working on it nights and weekends and maybe you’ve pulled together some folks to help you work on ...
3
Here's Paul Graham's (founder of YCombinator) take on the matter:
http://paulgraham.com/control.html
Keep in mind he's talking about a much larger A round -- not an angel round.
In another essay:
A typical big angel round might be $600k on a convertible note with a valuation cap of $4 million premoney. Meaning that when the note converts into stock (in a ...
3
Since you need his skills and his money and he wants a significant chunk of your equity, he'd make a much better partner than investor.
Treat entering a partnership with at least as much care and thoughtfulness as entering a marriage. If you can't work out a partnership, I'd pass on an investor at those percentages.
3
$50k for 40% might sound high, but, you're a first time, single (part time) founder, with (apparently) no product, or customers. The risk is almost entirely in the part of the investor.
I'd say you're pretty lucy to be getting an offer - but accepting at 40% will make further rounds difficult. Perhaps you could talk to the investor about giving back some of ...
3
It's common for equity owners to split the company equity equally, especially when their contributions are, roughly, going to be equal. You will want to make sure that all of your equity is subject to vesting over a reasonably long time period (like 3-4 years). A common mistake among startups is issuing a big chunk of equity to somebody who ends up not ...
3
Looking at the information you have laid out, even 20 people answering here won't help you. It is already getting convoluted, especially since people expect equity for having an idea, which is wroth zero without execution. There are 7 billion people in the world and I guarantee you about a thousand have the same idea right now. Only those who execute on ...
3
If you're not market rate, then it may be worth having "the talk" with your remaining founder regarding fair and appropriate equity. That said, a lot of posts seem to point to founding CTO as 10-20% (and most leaning towards the bottom of the curve) - others point towards 50 / 50%. Given that you would (likely) be considered a non-founder, the CTO numbers ...
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