How much equity is fair for joining a pre-revenue hedge fund?


2

The manager of a newly established hedge fund has offered me to join the company for 20% of the company + minimal salary. The fund is not profitable yet, and it would take a year, or two, before it can generate a profit, given that we will be able to raise enough investment.

The fund performs algorithmic trading, and my technical expertise will be employed to design and implement research and development, and trading platforms from scratch.

The nature of this role is not some routine coding, such as classical web development, but this will require non-trivial high performance distributed computing. On top of this, I will be expected to contribute in marketing in order to bring investors, and develop financial modelling skills.

The fund manager is not keen to accept a 50/50 equity share, as he believes he has spend many years perfecting his strategies, and that I am joining at a late stage. While I appreciate this, it is not easy to ignore the fact that I am not joining a profitable company, and it will need a lot of effort to get the company off the ground. Hence, I believe the 20/80 offer is not fair.

What would be a fair offer in this case? Is there a way to compensate the owner for his previous work, so that by removing this offset we could get to the 50/50 share?

Co-Founder Equity Finance

asked Jun 3 '14 at 03:40
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User33947
11 points

2 Answers


2

Apart from the information you've given, there are two main factors that might tilt the scale:

  • How much money the fund manager has already put in.
  • How much time and resources as already been expended.

Being able to contribute money yourself is indeed one way co-founders late to the party are able to negotiate a larger equity for themselves.

Thinking from the fund manager's perspective, since he started this solo initially, I feel it will be hard for him to go completely 50/50.

If you were to invest some money into the business, and make your case as to how you'll help grow it both from the technical side and from the business development side, 60/40 to 70/30 might be something both of you can feel content with.

answered Jun 3 '14 at 14:32
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Chrissie Gray
1,077 points

1

Read the book "Slicing Pie" by Mike Moyer. Then have your fund manager read it. Establish what has been put it already and then measure ongoing your own contribution versus risk. This way you'll get to earn a fair amount of equity, whilst still taking into account what has already been added in before your arrival.

answered Jun 4 '14 at 19:09
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Nick Stevens
4,436 points

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