How should we allocate shares given staggered involvement?


1

I have an idea I'd like to implement. I've done a bit of work to get together a proof of concept and it works pretty well. I think the potential is great, so much so that I've become a bit obsessed with making it happen. The only problem is that I'm heading off to business school full-time next year and don't want to commit all that much time to this endeavor for that period. But the obsession persists and I've been thinking about how I can get it off the ground.

Obviously I need to get others on board and have a tech guy in mind. I can't hire him since I have no money to invest (b-school sucking me dry) so I'm thinking of offering him equity. Thing is, I can only foresee him being involved until I finish b-school after which his involvement would drop off significantly - I'm a tech guy myself and I'd be able to take over from him. He's basically assisting me while I'm at school.

Once the tech has got to the point where its close to market ready (after the first year) I'd like to involve a marketing and branding guy to market the hell out of the app (yes it's another app). I don't want to get him in earlier because I think he'll just be sitting on his hands until the tech is closer to market ready.

So I'm looking at a timeline as follows:

I'm involved:

  • Part-time from now to year 1 and
  • Full time from then on.

Tech guy is involved:

  • From now to year 1.
Marketing guy:
  • From year 1 onwards.
And my question is: Considering this staggered involvement approach, how and when do we allocate the shares?

Tech guy is sort of a founder but walks after a year. Often the forums suggest splitting equity 50/50 for founders so do I take the 50% he would've got and divide it by the amount of years I expect we would've run before selling or something? The way I see it, we should be 50 / 50 at the end of the first year but his percentage should decrease with each subsequent year when he is gone.

Marketing guy comes late to the party. Should we just give him shares and dilute ours?

Equity Vesting

asked Oct 18 '11 at 20:27
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Mark Silberbauer
8 points

1 Answer


0

Well, anything and everything is appropriate, but I would approach it like this:

Assume that at some point you are going to need to raise some money, so there is no point in allocating 100% of shares up front.

You: Initial grant of 10%, plus 10% on a 1/4 cliff
Tech Guy: Initial grant of 1% (contingent on first delivery of prototype code), additional grant of 2% upon completion of code.

Marketing guy: worry about that when/if you actually hire someone, but probably a 3-6% standard 1/4 cliff vesting.

Or, you can raise the percentages and dilute later if you really don't think you will raise cash down the road.

My guess is that unless the app is REALLY simple, your tech guy is probably going to be around more than 1 year. You should account for this with the ability to be able to give him an additional grant on a vesting schedule.

I think that in your case here, the tech guy is not really any kind of co-founder, he appears to be essentially a contracter, working off of your instructions. He would likely contribute his own ideas and solutions along the way, but I don't think you're presenting this to him as truly having a vote in how the company or product really evolves? If that is true, this his compensation and equity package should reflect that.

These are just some quick thoughts/ideas. Simple version: tech guy is not your equal in this case, too early to worry about marketing guy, gut-feel is that you/mkt guy/tech should fall into a roughly 60/30/10 % share distribution ratio over long-term.

answered Oct 18 '11 at 20:58
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Brian Karas
3,407 points

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