Equity · Shareholder agreements

Issuing Shares in a startup?

Ali I Experienced Retail Maven, Marketing Pioneer, Mobile Specialist. Mobile Loyalty = $ales INCREASE! www.massmobileapps.com

November 8th, 2016

I have bootstrapped my mobile app development company, (we have developed a DIY mobile app publishing platform) and i have started to bring on members to my team. I am looking for resources and info on how to start issuing shares to potential team members. Currently there is not much in the way of revenue, but we hope to start generating some sales within the next 6 months, I want to offer equity stakes to a few people, and wanted to know the best way to go about it?
Any resources on share structure and how to set it up would be great. The company currently is structured as a Corporation in Canada.

Mike Moyer

November 8th, 2016

There are lots of ways to do this, but only one way to do it right.

Most methods include doling out chunks of equity at the outset of the venture in anticipation of each person's future commitments then slapping on a time-based vesting agreements. This is quite common, but wrong. This method leads to multiple rounds of renegotiation when people realize the split is unfair. Each round embitters participants and destroys relationships and could destroy your company.

The right way is called Slicing Pie and it is the only way to ensure a perfect split. 

The basic principle is that a person’s % share of the equity should always equal that person’s % share of the at-risk contributions.

Think of your startup like a game of Blackjack (albeit lower odds). You and your partner are going to play and split the winnings. Let’s say you decide to go in “50/50”.

In this game, like your startup, you don’t know if you’re going to win or when you’re going to win or even how much you’re going to win. The future is completely unknowable. Unfortunately, you have predetermined the split of an unknown future. Don’t feel bad, most startups make this mistake.

Now it’s time to play.

You each bet $1 on the same hand. The dealer deals two Aces. In Blackjack, you can now split these Aces into two hands and make another bet. Your partner is broke so you bet $2 more.

Again, the future is still unknowable. What is knowable is the amount of the bets each person made. You bet $3 and she bet $1. Does 50/50 sound fair? Probably not. It’s much more fair that you get 75% and she gets 25%. Your % share of the winnings should logically be based on your % share of the bets.

Your partner can sue you for 50% and probably win. But that doesn’t mean the deal was fair. The only possible way to have a fair equity split is to base it on the bets on the table.

Rob G

November 8th, 2016

steveblank.com is a good place to start. 

Chris Gorges Partner, Strategy at Rocketure

November 15th, 2016

http://launch.gust.com

Ali I Experienced Retail Maven, Marketing Pioneer, Mobile Specialist. Mobile Loyalty = $ales INCREASE! www.massmobileapps.com

November 15th, 2016

Thanks Chris, this looks like what i was looking for.