Compensation · Entrepreneurship

Equity between a project sponsor and a CIO

Jonathan Attipoe

September 24th, 2020

So I was contracted by a client to develop a product for him, because of my vast experience and knowledge in that industry, I was able to do that and he asked me to come on board to help him run the company because of my experience and knowledge, I helped set up the company and recruit some team members, I worked for him for 3 months without pay apart from the amount he paid for my developers to develop the product.


So now I am asking for an equity of 30% and a salary of $850 going forward because I understand the technology and I know how to drive the company in the right direction to be successful.


The client who is just funding the company has no knowledge or experience in this industry is refusing my offer and giving me 5% and an $850 Salary because he said he wants to get a lot of investors and if he does, there won't be much to offer them.


I feel 5% is not fair because of the effort I have put in and I am still going to put in to drive the business based on my skills, knowledge and experience in this industry.


What do you think, I'm I asking too much or what's being offered me is fair? Please advice.

Steve Owens Startup Expert

September 25th, 2020

Run away.


There are lots of people out there whose strategy is to get their product developed for free by going from one freelancer to the next and not pay them - or pay them as little as they can get away with.


This person does not value your skills. Find someone who does.

Henry FRSA Managing Director, Positive Profile Limited

September 24th, 2020

You probably realise this in hindsight, but you should have agreed a deal BEFORE you did 3 month's work - your naivety in not raising the issue until now may cost you dearly.


So my first question is: what leverage do you have? Can you cancel his project or afford to take him to court? What actual grounds do you have (if any) for accusing the client of 'bad faith'?


My suggestion is this: counter his offer - and excuse - by saying you accept the need to be diluted as and when he needs to print new shares to raise further investment.


I hope that helps - good luck for the future!


Kind regards,

Henry

Ema Chuku Product Developer. Founder.

September 24th, 2020

As Henry mentioned, you probably should reach an agreement prior to performing such works. Taking him to court wouldn’t yield anything in your favour because he’s paying you the “asked salary”, however he’s not bound to grant your 30% ownership-asked.


best you could do is remind him how much you have done and driven the venture.. counter the offer to perhaps 15-20%. And tone down your duties. perhaps in time he will realise how much you are worth.

Mike Moyer

September 24th, 2020

This problem is super easy to solve. Use the Slicing Pie model for equity splits, it's the only way to make sure that it's fair.


The founder is thinking about this all wrong. He thinks it's his job to dole out percentage points until he's reached 100% It's not his fault, most people make this mistake. Giving away "X%" will never give you a fair split. Your 5% is going to be wrong.


Think of it this way: You, like everybody else on the planet, has a fair market rate. This is the amount the market is willing to pay your for your services as an employee. Anything less than your fair market value is essentially a "bet" on the future outcome of the company. Over time, as long as you're not paid a full fair market rate, your bets will grow.


Anyone who works for the company or pays expenses is betting on the future. So far, you have bet three months of unpaid salary.


Your share of the equity should be based on your share of the bets.


There is literally no other logical way to divide shares in the company. Anything else is simply a wild guess. I know your cofounder thinks he needs to hold back shares for the future, but that's silly. You can always issue new shares to change the ownership. Slicing Pie tells you how to determine how many shares to issue.


You can learn all about it at www.slicingpie.com

Dane Madsen Organizational and Operational Strategy Consultant

September 25th, 2020

This statement: " ... because he said he wants to get a lot of investors and if he does, there won't be much to offer them." is very telling.


This is a false narrative. Because new investors dilute all shareholders (including him), where you start (5% or 30%) will be far less if there are actually new shareholders. If you are as good as you say you are, then potentially there would be few if any new shareholders leaving you with 5%. If he does not bring in more investors, and you end up with just a salary and 5% he will have 95% of the value.


This is a bad deal for you based on what you have told us.