Equity · Technical co-founder

What to expect from part-time partners if company grows exponentially in < 1 year?

RAM SHARMA

February 8th, 2015

We have a small team of 1 co-founder (full stack developer) and 2 marketing personnel working part time on new startup. They have agreed to put 20 hrs per week in return for equity. I like to know how to deal with situation when company starts growing expontentially within 9-10 months and co-founder still can not give 20 hours even after 1 year. Will it affect his 40% equity if that happens after 1 year? He is a student and on F-1 visa and to get H-1B visa takes long time if we have to sponser it ourself. How to make sure it does not affect company's growth and at same time we can hire other tech person who can get some equity for his part time commitment if not full time.

Mike Moyer

February 9th, 2015

Vesting is ok, but it is, at best, an attempt to patch a fundamentally flawed tradition in equity allocation in which chunks of equity are granted at the outset of a new venture in anticipation of future contributions. When this is done, anxiety (like you have) immediate sets in.

A perfect solution will easily accommodate the variability of commitment levels of individual team members, it will be flexible over time as things change, and it will ensure total fairness for all those involved.

I've developed a model, called Slicing Pie, that guarantees that each person gets what they deserve to get. It is a dynamic equity model meaning that it changes over time to keep it fair. There are two parts.

The first part is an allocation framework. The model allocates equity based on the fair market value of the contributions times a risk multiplier. Fair market value is important because it is an observable indication of what each person puts at stake. This is, in effect, their "bet" on the future of the startup.

The second part is a recovery framework. It will determine the appropriate buyout price in the event that someone leaves the company. The price will reflect the contributions they made and the nature of the separation. Getting fired, for instance, is different than getting laid off.

More detail on this model is on the Founder Dating Blog

I've written several books that detail how to implement the model and I would be happy to give you a copy if you contact me through SlicingPie.com.

Also, here is an infographic on the basics of the model:

Perfect-Equity-Splits-for-Startups-Slicing-Pie.jpg

RAM SHARMA

February 9th, 2015

Thanks Guys for your feedback. My question is what happens to his equity (40% over 5 year) if he still can not join full time after 1 year due to immigration issues (going from F-1 to H-1B takes more time) but still gives 20hrs per week. His 20 hrs per week contribution may not be enough especially if company grows fast and we need to hire more tech support team in addition to his contribution.  Can we give slice his equity under those circumstance or what options do I have?


Ron Brinkmann Founder at Precipice Labs

February 9th, 2015

Ultimately the people who control the company (presumably you, or a group of you who are specified as board members) should have a contract with this guy set up so you can modify it as conditions change.  He'll keep whatever equity he's earned based on what you negotiate but if a year later that scenario isn't working you'll have to decide to put a different contract in place with him.  Just make all that clear upfront so there's no miscommunication or hard feeling.  Seems like a reasonable concern so presumably he should be reasonable with agreeing to a solution.

RAM SHARMA

February 9th, 2015

Thanks Ron for your advise.