Big News: FounderDating is joining OneVest to build the largest community for entrepreneurs. Details here
Latest Notifications
You have no recent recommendations.
Name
Title
 
MiniBio
FOLLOW
Title
 Followers
FOLLOW TOPIC

Question goes here

1,300 Followers

  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur

Share Structure

I am looking for the best way to distribute shares of a company to people as a way to compensate them. Essentially I want to bring on some talent to my company, and wanted to do it by offering an equity position.

21 Replies

michael burack
0
0
michael burack Entrepreneur
president
  1. read BrUce Carpenter's lucid and rational approach on this website for clarity
David Fridley
0
0
David Fridley Entrepreneur
Founder at Synaccord
I have been looking at grunt pools in slicingpie.com but haven't implemented it yet.
Raghu Ranjolkar
0
0
Raghu Ranjolkar Entrepreneur
Strategic Marketing Consultant
Great idea, but very hard to accept.

Rahul Moghe
0
0
Rahul Moghe Advisor
Group Manager - Shared Services at InfoCepts
You have two options.

1. Vest a certain percentage of shares in them as they join or complete a certain period of service. The vesting can be at a predetermined price. The actual share distribution can happen at a later date, which is when they see a jump in the share value.

2. Issuing shares and going through the rigmarole is a pain in the early stages of the business. Consider Phantom Equity as a way out. You don't actually issue shares, but link cash incentives to the value of a share. The benefits of incremented share value keeps them motivated.
John Currie
0
0
John Currie Advisor
ITERATE Ventures - Accelerating Science & Technology Ventures www.iterateventures.com
Ali,

It's a great test for you ... to see how good of a recruiter and communicator you are. You have to ...

- translate your company vision into actual revenues,
- communicate that picture and how that will be executed,
- describe a valuation of what the company should be at that time,
- describe the role/impact of the person you are recruiting today,
- and how their compensation - shares earned in - are a phenomenal deal for them to jump on it now.

Make sense? Not as easy as offering cash ... but usually a must-do for all starting entrepreneurs bringing on early team members.
Terry Tormey
0
0
Terry Tormey Advisor
President & CEO at Prevention Pharmaceuticals Inc.
I agree with Rahul Moghe(above). Good direction. Also, expect those you will give equity, and you, to get "crushed" when later money comes in.
Ali I
0
0
Ali I Advisor
Experienced Retail Maven, Marketing Pioneer, Mobile Specialist. Mobile Loyalty = $ales INCREASE! www.massmobileapps.com

Thank You all for the responses....Currently I own 100% of the company, we are about 2 years in, and revenues are minimal. I am in talks with bringing on board a dynamicSales person who potentially can help me scale the company fairly quickly. I want to offer him an equity position, but am unsure ofWhat that should look like? What if he comes on board and does nothing, or does not produce the way I had anticipated? Alternatively What if he comes as advertised and the company experiences growth? I want to be fair to him, but also to myself. I was thinking ofOffering him between 10-15%, any thoughts?

Mike Moyer
3
0
Mike Moyer Entrepreneur • Advisor
Managing Director at Lake Shark Ventures, LLC
Someone mentioned Slicing Pie (thanks David!) I invented the model and it's quite simple. At any given time, you simply apply this formula:

A Persons Share (%) = Their Risk / Everybody's Risk

This is the only way to create a perfectly fair split.

Every other method is based on a person's ability to negotiate or predict the future. Then, to protect yourself from the extremely high likelihood that you negotiated wrong or predicted the future wrong, you can use a time-based vesting schedule which will provide a little protection at the great expense of misaligning incentives.

Slicing Pie is a relative risk model which makes much more sense. Risk is based on the fair market value of the contributions. Unlike future value, fair market value is easy to know.

When someone contributes to a startup company they are accepting the risk that they may never get paid for their contribution. The amount of that risk is equal to what they would have otherwise been paid for the same contribution from someone who could pay them.

For instance, let's say you're a marketing guy who could make $100,000 salary doing marketing stuff for a company. If you did similar work for a startup company that had no cash you would be risking your $100,000 salary.

That is crystal clear, no ambiguity whatsoever.

Most people spend time trying to figure out how much value you are adding. This is impossible. Only risk is knowable.

The risk of spending time is fair market salary, the risk of contributing ideas is potential fair market royalties, the risk of contributing relationships is potential fair market commissions, the risk of contributing office space is fair market rent. Everything has a fair market value unless there is no fair market value in which case there is no risk.

So, if you want to know exactly how much equity to give your new employee (and yourself) simply keep track of what he is contributing and what you are contributing and figure out what your risk relative to his is.

This will always give you the right answer with noambiguity.

Want to add a third person? No problem, when they contribute, add their contribution to the total risk and run the calculation again!

Slicing Pie is nothing short of a magical formula that will always give you the right answer.

It's simple and it's perfect.

I've written a number of books on this topic. The books go into depth about how to determine fair market value, how to keep track of the contributions, how to differentiate between cash and non-cash contributions and what happens when someone leaves the company under different circumstances. I'd be happy to send you a copy of one of them if you contact me through SlicingPie.com.

Slicing Pie runs against conventional wisdom. It's a new way of approaching an age-old problem that is fundamentally flawed. Any questions you may have can be addressed!

Good luck!

-Mike


Terry Tormey
0
0
Terry Tormey Advisor
President & CEO at Prevention Pharmaceuticals Inc.
That's a pretty big piece of your company. When i have done this with a Sales person it was more like 2% and it had to be earned with specific sales goals met (or exceeded).
Denis McDuff
1
0
Denis McDuff Entrepreneur
CEO
I like the Mike Moyer's risk analogy. In addition there is a difference between
stock (to reward performance and loyalty) and sales incentives (short term motivation). See Jeremy Lemkin's thoughts on sales commission structure at Saastr.com.
Join FounderDating to participate in the discussion
Nothing gets posted to LinkedIn and your information will not be shared.

Just a few more details please.

DO: Start a discussion, share a resource, or ask a question related to entrepreneurship.
DON'T: Post about prohibited topics such as recruiting, cofounder wanted, check out my product
or feedback on the FD site (you can send this to us directly info@founderdating.com).
See the Community Code of Conduct for more details.

Title

Give your question or discussion topic a great title, make it catchy and succinct.

Details

Make sure what you're about to say is specific and relevant - you'll get better responses.

Topics

Tag your discussion so you get more relevant responses.

Question goes here

1,300 Followers

  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
Know someone who should answer this question? Enter their email below
Stay current and follow these discussion topics?