Should initial contribution or future contribution determine equity stake?


0

I just launched my business which I have been developing for about a year. And in less than 2 months the business already has about 12 dedicated clients and we have made sales and refilled our inventory.

When I started the business, I felt I needed a partner to help with the marketing. I am a programmer and an enterpreneur, and have learnt a lot about business concepts and interracting with clients. I am so good at convincing people to use the product that I have brought in 7 clients on my own and and some of my friends who are not a part of the company but just help have brought in about 5 clients.

Each day I make deals and bring new people on board and do all the programming as well. I do not have time on my hands to even study for exams since I am still in College.

However, my partner, who deferred a year in College is supposed to handle the marketing side of the company. I invested twice the amount of money he invested into the company, built the product, etc.

Now we are partners and I gave him 30% of the company, a share he even thought was small and wanted a 60-40 deal. He is trying his best to get clients on board but so far he has had none, and I feel like I am doing all the work and I can do what he is supposed to do without any problem.

Right now, I keep thinking that maybe I made a mistake or maybe I am over thinking and analyzing things since we haven't been in operations for 3 months. He is however very committed and wants to see the company succeed. We have been friends for 13 years now, and I am confused. I however see him as a partner who will come around and bring new clients.

I guess I just feel like I have given out too much equity without seeing what he can really do. What should I do?

Partner Equity

asked Apr 23 '13 at 01:18
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Rasheeda
65 points

2 Answers


1

Whatever you do, come to a legal contractual agreement; get a lawyer.

Since your partner wants the company to succeed and increase his percentage, the terms need to address both. For example: set a sales goal where if he reaches it, he gets the 40%. I know you gave him too much already, but in the long-run having a successful marketing person is going to make your life easier. Don't set this too high. Include a minimum amount he needs to reach to keep his 30%. You can't set the goal too high because he won't risk giving up his current percentage. If you agree to make the amount he needs to get 40% obtainable, he has to be willing to set an amount where if he doesn't reach it, he gets nothing. I wouldn't let him have it both ways or you're no better off than you are right now.

Find out why he isn't closing sales. As a programmer, are you more familiar with the market (i.e. you're selling to programmers.)? Is he willing to learn from you? If he is sincere about the success of the business, he'll set his ego aside and fix the problem.

answered Apr 23 '13 at 03:01
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Jeff O
6,179 points
  • Also, it's worth noting that having a vesting agreement is key as it would have prevented and/or given you approach to the current issue. – Casey Software 3 years ago
  • okay, thanks a lot – Rasheeda 3 years ago
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1

You made a mistake. But it's not too late to change. What you need is a dynamic equity split that will allocate equity based on actual contributions to the company. Your 30% grant to this guy was given in hopes that he would contribute something of value. If he doesn't you will have to try and get the equity back which will be a long painful process.

A dynamic equity split takes into account all the various contributions someone can make including time, money, relationships, ideas, etc. It assigns a relative value to each contribution. The equity each person deserves is equal to an individual's contributions divided by the total value of all the contributions made by participants. The equity allocations change over time, but at any given time everyone will have exactly the amount of equity they deserve. No more no less.

Slicing Pie (www.SlicingPie.com) is a complete guide for implementing a dynamic program. It's my book and I would be happy to give you a copy if you don't want to buy it! It is the perfect solution for your problem.

answered Apr 24 '13 at 01:29
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Mike Moyer
284 points
  • thank you, but we have already signed the contract. I am scared it might affect our relationship and his input. How do you suggest I approach this? And i will love to read your book – Rasheeda 3 years ago
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Partner Equity