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What equity do I give my biz dev and programmer potential partners?

I'm in the process of forming my start-up. I am the creator, current sole founder and sole owner of phase I of my business. I also own the pending patent which is the key to the new concept. However, I have found a team of a biz dev partner, and programer whom are totally necessary for the success of phase II of my company and it's important to me to that they have skin in the game, but also important to value what I am bringing to the table, the entire idea, an existing website, and thousands of followers from phase I of this business. I don't want to go below 51% equity, it took me 4 years to develop this concept, acquire customers and form relationships. I personally own the pending patient and I need creative control to oversee phase II grows properly. I also need equity to bring investors on after we have programmed a demo. I'm not incorporated yet my current business is an LLC but I will be dissolving that LLC and incorporate to set myself up for investors. Initially my biz dev wanted 30% and my programmer hasn't prosed anything yet. My programmer has rare important skills essential to the concept and he would be programming PT on the weekends to come up with the demo.

I myself am a creative, inventor and designer. So I need the right team to help me follow though. I am all ears. I need outside advice, I want to make sure I set myself up for success from the beginning. Thank you!!


24 Replies

Jessica Alter
2
0
Jessica Alter Entrepreneur • Advisor
Entrepreneur & Advisor
Not sure if you did a search but there are TONS of discussions about thishttp://members.founderdating.com/discuss/topic/Equity

Brian McConnell
0
0
Brian McConnell Entrepreneur
Head of Localization at Medium.com
It sounds like it it is still in the idea stage if there isn't shipping product or an actual corporation. I think you will need to be pretty generous with money plus equity to get people's attention, and mostly money since it is easily converted into equity in other companies. If you are in the sf area, the bullshit factor is extreme so its basically a cash economy in terms of hiring (no cash, no work). Probably not what you want to hear but this is all going to blow up in our faces and the people who know how to build stuff don't want to get screwed. Sent from my mobile phone. Please excuse any typos or discombobulations. FD:Discuss New Discussion on What equity do I give my biz dev and programmer potential partners? [image: Rebecca Zajac] Started by Rebecca Zajac creator and founder, Design By Numbers. I'm in the process of forming my start-up. I am the creator, current sole founder and sole owner of phase I of my business. I also own the pending patent which is the key to the new concept. However, I have found a team of a biz dev partner, and programer whom are totally necessary for the success of phase II of my company and it's important to me to that they have skin in the game, but also important to value what I am bringing to the table, the entire idea, an existing website, and thousands of followers from phase I of this business. I don't want to go below 51% equity, it took me 4 years to develop this concept, acquire customers and form relationships. I personally own the pending patient and I need creative control to oversee phase II grows properly. I also need equity to bring investors on after we have programmed a demo. I'm not incorporated yet my current business is an LLC but I will be dissolving that LLC and incorporate to set myself up for investors. Initially my biz dev wanted 30% and my programmer hasn't prosed anything yet. My programmer has rare important skills essential to the concept and he would be programming PT on the weekends to come up with the demo. I myself am a creative, inventor and designer. So I need the right team to help me follow though. I am all ears. I need outside advice, I want to make sure I set myself up for success from the beginning. Thank you!! [image: social sharing] ------------------------------ FOLLOW DISCUSSION or Reply Directly to this email to participate in the discussion Manage your email notifications
Matthew Barmash
1
0
Matthew Barmash Advisor
Consultant, MEB Consulting
Rebecca, Equity is all a letter of the exchange of cash on hand vs. future potential. In other words, it entirely depends. That being said, the numbers you are being asked to provide are beyond excessive for all situations outside of you ever being able to bring this product to market in another way. Please remember that everyone is replaceable. That does not mean you should not value the people you work with, but it does mean you should be careful in where you place your bets. Giving equity is is in essence a capital exposure for you. You never get it back do you need to spend it wisely. Best of luck.
Kelly McIvor
6
0
Kelly McIvor Advisor
Product Marketer | Mobile Strategist | Opportunity Developer
Rebecca,
Like Jessica mentioned, there are lots of discussions on this topic. But here is my view: You're idea isn't worth what you think it is (I have no idea what it is, BTW). But unless you have a product and customers you should drop the thinking that you need to have 51%. After you get seed or early-stage funding you won't have controlling interest anyway so just drop that now. What you need is a team - and you won't get funded without one - who is committed to the idea and has a big enough 'carrot' to make them leave their current gig or devote nights and weekends until cash is available. Without them your (provisional) patent is worthless. The fact that you have authored the idea and built a following is great but wouldn't be considered 'traction' by any serious investor. Give your co-founders (that IS what they are) a healthy stake (20%-25%, leaving room for an options pool for your advisory board and future employees - around 10%), build into that a vesting plan and consider them family until you find an exit.
Ben Griffin
0
0
Ben Griffin Entrepreneur • Advisor
CEO Peer Group Facilitator | Executive Coach | Board of Directors | Strategic Thinking | Ben.Griffin@CEOIQ.com
Rebecca, Your start up sounds like an exciting project...and one you have spend considerable time, energy and possibly money developing to this state. It also sounds like you are at a 'pre-revenue' stage - although having "thousands of followers from phase I" may mean you have some revenue?? There are many possible answers to your questions about equity at this early stage... (1) Be cautious about doing the 'change over' from LLC to corp structure. Your first round investors may prefer an LLC option because you can pass a disproportionate share of early stage losses thru to them. (2) If you are pre-revenue and looking for investors, you are going to have to give up more equity than you would like - be prepared for that (3) Your Biz Dev person is asking for 'sun, moon and stars' at 30% - ultimately, the 'right' number is what you are comfortable with and what you and your 'partners' agree on'...best guess is something in the 5 - 7.5% range each would be appropriate (remember, you are going to wind up giving up a big chunk to investors (it may well take you below 50%) (4) Get clear about your valuation at this early stage. Most entrepreneurs are wildly optimistic about early stage valuations, particularly pre-revenue. Watch a few episodes of Shark Tank and you'll get a real-world education about this issue. (5) Quantify your addressable market and who the customer is clearly - investors are going to want to know a lot about that side of things early
Zac Kline
5
1
Zac Kline Entrepreneur
Technology Transactions and General Commercial Attorney
Rebecca, Not sure that this will get to you, but my reaction is that 30% for BD is ABSURDLY HIGH. Bring people like that in at a low but reasonable initial number (5%-10%) with 4 year vesting and see what they do. With respect to the programmer, I would try to keep this at (10%-15%) also subject to vesting. Part-time is common, and your going to have to keep a constant pulse. Zac
Raphael Londner
1
0
Raphael Londner Entrepreneur
Developer Advocate
Rebecca,

As said in many other posts on FD, setting up a Grunt Fund is probably the best way to go in your situation, in order to take your previous efforts into account. Take a look at http://www.slicingpie.com/ for more info.

Also, you don't have to dissolve your LLC if you set it up in Delaware and can easily convert it to a Delaware C-Corp. It's really not that hard (I've done it), but you might want to get a lawyer involved (contact me if you need one).

Good luck with Phase II of your startup!
Michael Masello
1
0
Michael Masello Entrepreneur
Digital Marketing Professional
Your desire for 51% is understandable, but as others have said as you raise funds that isn't likely to remain. There's no right or wrong percentage here.

You have to look at it from their point of view. I'd be looking at your current revenue stream (if you have one), any funds raised, and assessing my own belief on what the 5-10 year return would be for a cashless position. 5-10% pre-funding would likely get diluted down to 2-5% if not greater. Perhaps you could afford to pay a salary later, but there's no guarantees in place. So if I joined full-time on the future promise of an exit at 1-2% and thought it would take 5 years there needs to be enough upside to offset the risk.

Mike Moyer's Grunt Fund book is definitely worth looking at. In this case it may not be as applicable. If you brought someone on, after 1 year you'd have 5/6 of the pie, they'd have 1/6; though the book does account for variables beyond time. If in one year your new partner could quadruple your value that sounds like it'd be worth more than 1/6 of the pie.
Rebecca Zajac
2
0
Rebecca Zajac Entrepreneur
creator and founder of Design by Numbers
Thanks for all the advice. I guess I should have been clear that phase I of my business I have worked full time the last 3 years and have generated revenue. Phase II is programming so my business is scalable. When I mentioned thousands of followers, a large portion of those are paying customers. I am beyond the idea phase.
Ben Griffin
4
0
Ben Griffin Entrepreneur • Advisor
CEO Peer Group Facilitator | Executive Coach | Board of Directors | Strategic Thinking | Ben.Griffin@CEOIQ.com
O.K. Rebecca, with the added info that you have a 'going concern'...the Biz Dev person who is asking for 30% is basically living on some other planet...unless that person is willing to buy a 30% interest at current valuation, there is no way you should consider 'granting' or optioning a 30% interest...or anything even close to that...It sounds like you have a solid proof of concept and are generating revenue, so anything over 5% would be too rich, particularly given the dilution you can expect from bringing in outside investors.
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