How do I add a new business partner?


1

We are a tech consulting company and our current group consists of four equity partners. We are interested in adding a new "business" partner, as our current partners are all technical, but we know little about business development or sales.

Our company is two years old and we have some IP, some cloud based products, and of course some customers! We want to bring in a new partner who is a non-technical, business development and operations guy. We are struggling to come up with an equity distribution and vesting schedule. How should we go about this?

Co-Founder Equity Distribution Vesting

asked Apr 27 '13 at 06:31
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Bd2x
6 points

2 Answers


1

You have two potential approaches to use:

  1. The standard tech company approach is to give the person options, since the expectation is that you will sell the company and the options are then worthwhile. Typical vesting schedule is 4 years. Typical CEO options would be about 10% for an established growth tech company with significant external funding already received.
  2. The standard partnership approach is to allow the person to buy into the partnership over time. You agree a price for your shares, and agree to sell this person shares over time. This way you can pay a market salary, with the understanding that the person chosen will give each of you some of that money back by buying your shares. Then all you need to figure out is a fair share price. The rest looks after itself.

I am sure there are other inventive approaches as well.

answered Oct 4 '13 at 00:01
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Kamal Hassan
1,285 points

1

Here's what I do:

To find eligible candidates, if I know someone or know someone who may know someone, start from there. Otherwise post a flier (i.e. in some online job board).

At interview, ask about educational background and career, but tell nothing about the equity offer. If you find the possible candidate then give him more (safe) information about your business. Let's see if he get interested or not (if he is, he asks for more information). Highlight your lack of business administration knowledge and experience. Finally ask what is his expected salary as CEO (you better do this in separate meetings, not at once). Whatever he asked for salary, tell him although you are very interested to work with him but currently you cannot pay such salary. Key point is, if he suggests other privileges (equity) in return to some guaranteed output, he's probably the right person. If he is going to work at low rate (based on resume and market wage ranges) and guarantee that for example at one year he rises profit to 20% or more then there are two points:

  1. He is going to take risk like other co-founders and behind this, you know he has seen some potentiality which you didn't.
  2. He is so sure about his ability to make effective changes that is going to guarantee (with some estimate) a specific measurable output.

You can write an agreement to give up some equity upon he meets his claim (you can split it in more than one step) but keep VETO power for yourself on his business decisions because he may go to get what has promised in exchange to ruin (usually at long-term) something more valuable i.e. customer loyalty, company reputation...

This may not be easy to implement but he is gonna join you as co-founder so it worth to do it as good as possible: A clever person solves a problem. A wise person avoids it. There is much more on this but enough to transfer the concept, let me know if something is unclear to you.

Here is a list of top executives in large businesses and governments who have worked for an annual salary of 1$ (It is not a good idea to make such offer to your new partner!)

answered Apr 27 '13 at 10:28
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Xaqron
311 points

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