equity bonus for early stage employee if contacts produce investment


1

I'm a developer and I've been working with a startup for awhile and things are now getting (more) formalized with regards to equity (grants) and vesting. I am getting equity as a developer but my question relates to the fact that we are discussing additional equity if my industry contacts result in significant investment/runway. This is not pie in the sky, equity for my telephone numbers, but milestone based rewards for specific amounts of investment. What are comparables for this? I can't find anything. It's like an equity bonus if the contacts produce results. Thoughts? Pointers?

Equity Business

asked Oct 19 '13 at 07:00
Blank
Daysareokay
6 points
Top digital marketing agency for SEO, content marketing, and PR: Demand Roll
  • I'm not sure what "comparables" means here. Can you clarify? – rbwhitaker 7 years ago
  • By comparables, I mean what arrangements were worked out for similar situations. So I can evaluate if the arrangements we are discussing are in the realm of fair and reasonable. Thanks. – Daysareokay 7 years ago

1 Answer


2

The first point I have is that it doesn't sound like you "have" equity, you have a promise to receive equity.

Typically, when equity is actually issued, you pay cash for the shares (e.g., typically fractions of a penny per share). If you are getting the equity as a gift, it's the same as cash compensation, and you owe taxes on it ... and it is often cleaner to break the transaction into two pieces: (1) get paid for services, and (2) reinvest the cash to buy the equity.

I've seen examples where people were promised equity they think they have, but the company hasn't actually issued it, and when they actually get around to formalizing things, they don't end up as expected.

If you were an investment banker helping raise equity, the standard terms would range anywhere from 3+3% to 7+7% (3% of investment in cash + 3% of investment in options/warrants). That assumes you actually help pull the business plan together, take part in the pitches, etc.

If all you provide is a name, the standard finder's fee is around 2% of the amount invested.

Of course, if you have founder's equity (10-15%+) you are expected to contribute leads for free, like any other founder. If you just have a couple of percent, then the finder's fee in addition makes sense.

answered Oct 19 '13 at 07:16
Blank
Kamal Hassan
1,285 points
  • This is in process but I will be paying cash (soon). I have a good equity share but not founder's equity. I would be pulling the plan together and making pitches. I don't understand the banker terms so I wonder if you could translate 3+3% etc into something a bit simpler. I appreciate your comments very much I just don't quite understand the terminology. For this, "3% of investment in cash + 3% of investment in options/warrants," say I bring in a year's runway, how do those numbers apply? – Daysareokay 7 years ago

Your Answer

  • Bold
  • Italic
  • • Bullets
  • 1. Numbers
  • Quote
Not the answer you're looking for? Ask your own question or browse other questions in these topics:

Equity Business