Equity distribution · Revenue sharing

How do I structure payment, profit sharing, and/or equity for new venture?

Dat Nguyen Creative Director

August 15th, 2016

I'm consulting on a new venture. I'm willing to defer my standard fees for the first few 4-6 months until the founder can afford to pay. After that we're trying to figure out the best way to receive some form of ongoing payment but also receive some revenue share or equity based on my investment.

For example, if I provide $50K worth of work and in 6 months the founder pays me $20K, then my other $30K will then be considered an investment in the company. But in 6 months the company may be worth X times more, so that $30K should be worth X times more. I also see that the risk I'm taking in taking a deferred payment of the $20K should be included in the investment.

What's the best way to structure and value those investments?

Mike Moyer

August 15th, 2016

Do this:

Tell your client that as a consultant your fees would be subject to a buyout schedule as follows:

buyout-slicing-pie.jpg
Send invoices monthly. If they pay your invoice, no problem. Each month that goes by they would pay an increase according to the schedule above.

This gives them the ability to pay you back without giving you equity, but recognizes the high risk you are accepting.

At the end of the year whatever is left over will be treated as a convertible note towards equity. The buyout option would expire. For instance, if you billed them $50K in August and they never paid you, you would get a $100K convertible note in September the following year.

The same rules would apply if your client is using the Slicing Pie model, but at the end of the year you would get slices in the pie instead of a convertible note.