I have someone joining, but not being paid a wage initially, he will be compensated purely in equity, I am interested to hear how people structure such an arrangement and how to decide on the equity %.
Thanks in advance!
Dennis, there are two key ways to do it.
First, you can grant the shares up front and ensure that they have vesting provisions. This means that the value/ownership of the shares will vest over a period of time and/or upon hitting certain targets. If the requirements are not met, the company can buy the shares back for nominal value in the future (or when the employee leaves).
The other way of doing it is to grant options to acquire shares at a specific price in the future. The prices is fixed at the date of issue of the option.
Happy to discuss further.
Equity distribution will be based on the net worth (valuation) of your startup or business. The equity is usually distributed among the founders, investors, advisor and employees. The share will be determined based on the contribution of capital and pre & post money valuation of the startup.
How much an equity chunk you should give to a person will mainly depend on his/her contribution or role in the business in case of sweat equity.
Read "Slicing The Pie". I don't remember the author but it deals with that ver problem quite well. I'm sure it works equally well in the UK.