I wish that my equity situation for my new company were easy; unfortunately it's not - so I'd love feedback and thoughts.
I met with a well connected business person (we'll call him Karl), and he had a vision for a new venture. I loved it and wanted to work to make it happen. Karl was a full time CEO at another company and offered work that was non day-to-day, including business strategy, negotiations, connections to VCs, help on the board, etc... but no investment. We agreed that I would get 75% of the company and he would receive 25%.
I started building the company, writing code, hiring people, and making connections - all without Karl's assistance, and with my own money. We added a late joining co-founder (full time) named Hank, and set the split amongst the three of us as: 65% me, 25% Karl, 10% Hank.
Karl's involvement has been overall very low. He has really become an advisor - he helped a little with the pitch deck, and he's made some good VC introductions, and of course he had the magical 'idea'. But he has not given the amount of input and proactive involvement that I would have hoped.
Although late joining, Hank is not happy that someone who has very little involvement has 25%. As I've seen Karl's contributions, I don't see 25% being fair either.
Any thoughts on navigating this?
A few thoughts of my own: -Having more equity myself is not really important; what is more important is that people in the company don't have ulcers about this stuff (including me).
-I really would like to have Karl involved, but at an amount that is less than that of Hank, but I think I risk bridge burning here.
-Will VCs, on raising (we're raising an A round), look at his 25% and ask for the equity splits to change? Or will they look at me and think I'm stupid for that sort of equity split and run for the hills?
Best to talk it out and act as if you did restricted shares at the outset and clearly had laid out duties. Frankly if he didn't do anything else, he probably deserves 10 or 15% for the idea and early business planning. Talk it out. He's better off with a smaller piece of a bigger pie ... so maybe you tie your gaining ground on real progress that you create.
If he won't cooperate and you don't mind alienating him, consult your attorney. Unless there are agreements to the contrary, your 65% controls the company. Just get the Company to sell you and Hank more shares ... or grant your early-exercise options for work you are doing. Karl won't get any, as he's not active.
So far in order to attract a key person you have given up equity. Not knowing the situation it is, as the previous poster indicated it is about a discussion but also more importantly a negotiation of the future of the entity, the level of compensation (cash, options, stock) for you and key personnel, and the value of the idea as contrasted to the value of bringing the idea to reality.
Many have ideas, few can bring in the crop.