Late founder equity allocation


9

Guy is late coming founder, the company not yet incorporated.
I designed the product (several biomed multisensor devices) and taken it from concept to a mature prototype ready for manufacturing (1 year's work)

ME:

  • hardware product, from design to packaged, ready for sale unit
  • all website and app development
  • knowledge of incorporation/credit card processing/taxation/online sales
  • knowledge of lab testing (FCC, medical) and will pay for these
  • contacts and experience with cheap china manufacturing, product assembly and warehousing
  • small network of consultants, both found for this project (biomed sector) and from prior experience (manufacturing, patents, incorporation etc)
  • will probably pay for patent costs, up to 20k$

HIM:

  • researcher
  • no money invested
  • will start out full time (quit his job)
  • very well connected in Silicon Valley
  • extremely good networker, well liked, has been in one or two documentaries, and has a few of his speeches on the internet (prestige). He is not generally known though.
  • his ability to raise funds (through acquaintances, grants) would be his most important asset here, but I do not look for funds presently, rather I would like to bootstrap the company from my savings and initial sales.

His roles:

  • reaching out to influential people and bloggers he knows
  • sales, evangelism, PR
  • get product on tech magazines and peer reviewed papers

I can market and sell the product by myself in one of its possible niches. However, the product is suited to various different niches.

My idea is to tie his equity to some "deliverables", and limit his marketing efforts to those niches I won't be looking at, in such a way that his efforts will be clearly trackable. At least until he's vetted.

Note that sales is not his job description. I'm sure he can be a good evangelist, but not so sure this will translate into revenues.

ONE POSSIBILITY:

  • 10% vested after 2 years,
  • extra 20% based on results. Results could be tied to revenue generation (units sold), media exposure (page views), or similar.
  • I am willing to up this a bit if we end up taking large chunks of money later on, but right now I am just scared of taking money and ending up with a boring job and lots of headaches. I plan to go as far as I can without, and think about it then.

I want a clear cut way out (pre-nup?), in case his PR doesn't translate into revenues.

Please share your thoughts with me. I want to make a FAIR offer to him given the above situation, so don't be limited by the tentative plan above. I want to get him to give his best, and limit risk to myself in case he doesn't deliver.

Co-Founder Equity

asked Dec 26 '12 at 00:03
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User22242
46 points
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2 Answers


1

If you're both putting in sweat equity, in a year, you'll have 2 years in and he'll have 1 year. If you're not making money by then, the business is probably wrong.

I've always liked a push-me-pull-you valuation for repurchase (I'll offer you $.10 per share; if they want, other party can buy your shares for $.10; if they don't they have to sell for $.10 per share).

On the other hand, if you're paying him a market salary, then typical initial engineer stock options are .5% to 3%.

(oops -- just noticed quite old -- but answer remains the same)

answered Feb 20 '13 at 12:44
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St68
11 points

0

As you noticed no one answered this question. This is because the answer will be very opinion based and the viewers might not think there is one solution to this problem, I agree. Equity allocation is a very sensitive topic, and since communication is key, I think its best to simply ask your co-founder what he thinks is reasonable.

I personally like the idea of giving him more equity if he shows results, but he might not. Ask him.

answered Dec 26 '12 at 06:35
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Bhargav Patel
784 points
  • A range of views would help, even if conflicting! I will of course ask him - but I like to do my research ahead of time to know what is generally deemed reasonable. Thanks Bhargav. – User22242 8 years ago

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