Deciding equity and profit sharing when co founder takes salary and works full time


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Having read so much on how equity has to be split, i am still confused and am unable to come to any conclusion. I Would highly appreciate if you could fill in the gap as its making life difficult.

Scenario :-

Three people are involved in this start up.The company is a system integrator and provides automation solutions.

People Involved

Guy 1 : Sales person [He was part of a venture that blew up, so when he had contacted me for this venture he was already jobless :), Currently he is working full time as a sales agent.

Me : Technical person. Involved in the design, development and execution of the project. Currently working part time and assisting Guy 1 with technical specification to projects and preparing presentation on the systems which he presents. Later would be involved in sales and marketing.

Guy 2 : Technical person. Had joined in late. Would also be involved in design, development and execution of the project. Currently working part time.

The expense for 1st year : 90000$

Expense Breakup

Salary Guy 1 : 4000

Pf for Guy 1 : 1420 { 35% of his salary has to be paid as pf }

travel,telephone etc : 2080

As per GUY1 the equity distribution should be.

Guy 1 : 55% [ 49500$ invested plus effort. getting paid 5420/ month ]

Me : 35% [ 31500$ invested by me plus my effort (currently not being paid anything, salary would be paid once working full time) ]

Guy 2 : 10% { had joined in late } [ 9000$ plus effort (currently not being paid anything, salary would be paid once working full time)]

My Question's :

1) Guy1 says he is taking more risk and cannot go below 55%, is it justified ? As we both will be doing all the technical work. Based on the working capital the major share is the salary we have to pay for Guy1. When i calculate the amount of money all of us have put in at year end

% of W.C money returned year end

Guy1 : 49500 - 65040(5420*12) = -15540$

Me : 31500 - 0 = 31500$

Guy2 : 9000 - 0 = 9000$

2) According to Guy1 the profit sharing should be 55:35:10, I am not convinced with this either as the amount of work we put in is also critical, to finish the project.

3) I am not convinced with such a high salary, as currently we do not have any revenue at all. Moreover when being asked if once fully employed will we be getting the same the answer is it depends on what we make.

Equity Salary Profit Sharing

asked Sep 3 '11 at 20:24
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User13119
1 point
  • I am not sure, where you question is? – Ross 8 years ago
  • thanks for the feedback, have edited my text. Waiting for the answers :) – User13119 8 years ago

2 Answers


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Please see "how to divide up your company's equity" meta post. Similar cases to yours have been brought up before. You may find quality advice by a quick search through previous questions.

answered Sep 3 '11 at 23:35
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Seth Rogers
713 points

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Start by dividing the equity conversation into two parts:
- equity for founders
- equity for cash

Equity for founders can be split up using foundrs.com, foundersolutions.com or a similar equity calculator. You will then need to add vesting : over 4 years for him, longer for you as part-time workers.

Equity for cash should be split up based on the valuation of the company and the amount of cash you each put in. Start with $250,000 as a value of the company that the three of you bring, and negotiate up from there if you feel appropriate.

Lastly is the question of salaries /contractor payments. A simple starting point is to pay each of you the same hourly salary for your time invested in the company (and this salary should be considerably lower than your market rate). Negotiate up or down as you feel appropriate.

Run this math and you should come to a reasonable number. Note that thanks to the magic of vesting, the shares you own on paper will be different than the shares you own if you leave the company. So if one of you leaves or doesn't work full time, you will keep less.

answered Aug 31 '13 at 00:09
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Kamal Hassan
1,285 points

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