Early-stage Startups
I started a marketing company 4 months ago focused on helping brands to connect with influencers internationally. I had no employees. My two friends who have full time job saw what I was doing and thought the idea was interesting. They helped me out couple of times (few hours each time) for the past month. During that period, I keep inviting them to join me in the venture, but they expressed high interest but didn't make the moves. (Background on my friends: One of my friend is good at customer relationships - sales, the other has got a entrepreneurial personality but little domain knowledge.) And just today, we won a annual contract from a major brand which is worth ~160k/year and another 2 in the pipeline. If they join me now, what should I consider them as? Should I pay them market salary and give me stock options? Or should I allow them to buy in at a valuations? Or should they still be the cofounders, sub-market salary and have shares vested? Please let me know what you guys think :) Thanks
3
Answers
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Great situation you have found yourself in! Good for you!
What your friends are doing and putting you through is common.
When I have given out shares I calculate several things:
1. time they will be involved in the company.
2. the value they provide in the scalability of the business - not their current offerings (this helps give out additional after certain time frame)
3. Consider their current value, how easily replaceable is their skill set.Be honest with yourself because this can cost you.
4. Have they been heavily involved since the beginning?
5. Do you want them around?
6. Did they directly help win part of the contract?
The truth of the matter is that a lot of startups would have maybe considered them as advisors and granted them no more than 1% of the company. I did this as well with my board. Early partners in my case one had 30%, while another had 5%, several had no more than 1%, I had 50% and we left 10% available for investors.
However the reality of this is that they are now employees, you can however consider them partners and provide incentive to stick and keep working harder. Not stock all granted at once though.
So, to clarify- are you filed as a Corp? the laws (if you are in the U.S.) are different for partnerships between LLCs and Corps... LLCs lean more towards all owners/partners having equal claim but under contracts could have limited representation and salary draw.
If you have any further topics to discuss feel free to give me a call!
Humberto Valle
@officialUnthink
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Answered over 9 years ago
CTO, Coach, Geek & Principaled Capitalist
That entirely depends on what feels right to you.
If you are going the shares route, I like this model, as it is fairly intuitive:
You of course need to have a valuation for your company in order to determine the amount of outstanding shares though, and you can do that in multiple ways, but this may help:
http://venturehacks.com/articles/seed-valuation
But realistically, you need to do what feels right to you.
I'm happy to discuss with you further.
Answered over 9 years ago
Clarity Expert
You can consider a lot of things and get a lot of advices and recommendations from everyone. All of them are right, but finally you have to make the decision. So, the most important thing is that you should feel comfortable with the final picture.
If you do not know the calculator referred by Heather Wilde, maybe you find useful. I encourage you to try it. It always works for me (http://foundrs.com/)
Answered over 9 years ago