How to Divide Equity to Startup Founders, Advisors, and Employees
20 Aug 2011 | 70 Comments | posted by Peter Chee | in entrepreneurship, funding
Since returning from MIT back in June I’ve been focusing on the growth of the company. It has been pretty much on mind non-stop for months now. The part that I’d like to zero in on is when you’ve got a high growth company what are some of the best practices out there to distribute equity to the founders, advisors, and employees?
Equity for Founders
The Founders’ Pie Calculator by Frank Demmler, an Associate Teaching Professor of Entrepreneurship at the Donald H. Jones Center for Entrepreneurship at the Tepper School of Business at Carnegie Mellon University invented an interesting way to divide equity between founders in a way that is both logical and fair. Sometimes when people start up a company they make decision to divide up the equity evenly because it’s “fair”. Demmler’s approach is a bit different in that the calculator provides a way to quantify the elements of the decision making process, and that it appears to be logical and fair. The elements of the decision making process are 1) Idea; 2) Business Plan Preparation; 3) Domain Expertise; 4) Commitment and Risk; 5) Responsibilities.
The idea behind the calculator is to come up with a weight for each of these five elements and then assign a value to each founder on a scale of 0-to-10. Then you take the weight and multiple it by the founders score to come up with the weighted score. From there you can get the percentage of equity. I like this a lot better than splitting things equally because it allows you to quantify what is important. See table below for example of how this works.
| Weight | Founder 1 (Contribution) | Founder 1 (Weighted Score) | Founder 2 (Contribution) | Founder 2 (Weighted Score) | |
|---|---|---|---|---|---|
| Idea | 7 | 10 | 70 | 3 | 21 |
| Business Plan | 2 | 3 | 6 | 8 | 16 |
| Domain Expertise | 5 | 6 | 30 | 4 | 20 |
| Commitment & Risk | 7 | 0 | 0 | 7 | 49 |
| Responsibilities | 6 | 0 | 0 | 6 | 36 |
| Total Points | 106 | 142 | |||
| % of Total | 43% | 57% |
Equity for Board of Directors and Advisory Board
When figuring out how to provide equity to advisors, you can use this chart as a guideline. Typically for an Advisory Board it ranges from 1/10th of percent to 1/2% and for Board of Directors from 1/2% to 2%.
Equity for Employees
It’s important to figure out how much equity you give to your employees. David Crow writes in his article “Founders versus Early Employees“, “Remember the goal is to incent early employees to have an emotional ownership of the product and company they are building. Equally said, potential employees need to understand what they are getting into”. The one thing that I think is missing is distributing equity to every single employee in the company regardless of title. Quite honestly, it takes an entire team to build a company and giving each employee a piece is important so that employees are rewarded in the upside of the company as they have made a decision to work for you instead of some other opportunity. Giving equity to employees also helps foster the “act like an owner” kind of mentality. Below is an example of how some companies may approach distributing equity to employees.
| Title | Range (%) |
|---|---|
| CEO | 5 - 10 |
| COO | 2 - 5 |
| VP | 1 - 2 |
| Board Member | 1 |
| Director | 0.4 - 1.25 |
| Lead Engineer | 0.5 - 1 |
| 5+ years Experience Engineer | 0.33 - 0.66 |
| Manager or Junior Engineer | 0.2 - 0.33 |
Number of shares = Meaningless. Just the % Matters
Chris Dixon wrote a blog post about “The one number you should know about your equity grant“. The one number you should know about your equity grant is the percent of the company you are being granted (in options, shares, whatever – it doesn’t matter – just the % matters).
- Number of shares: meaningless.
- Price of shares: meaningless.
- Percent of the outstanding option pool: meaningless.
- Your equity in relation to other employees: meaningless.
- Strike price of options: meaningless.
All this information that I’ve gathered up here seems rather logical. Are there other tools that you’ve used that you think would be helpful to share with other entrepreneurs and founders? Are there principles that you live by that you’ve implemented in your startup that have worked really well? How long should people vest – four years? Five years? No cliff? Should founders have anti-dilution rights? I would really like to hear your thoughts on this.
This article was written by: Peter Chee
Chief Pot Stirrer at thinkspace. Entrepreneur. 1/2 Marathoner. Learn to run when feeling the pain: then push harder. Ski instructor for tots. UW Husky. EO MIT.
70 Comments
Pingback: How to Divide Equity to Startup Founders, Advisors, and Employees … | | The Money BooksThe Money Books
Peter, this is another interesting post, and one that ties well into your previous post about single founders and dealing with disagreements.
Specifically, what’s interesting to me about the owner allocation formula in your example is that part of the allocation is based on “what has been done” and another part is based on “what needs to be done.” In the example, founder 2 scores 57% of the founder shares and, yet, most of founder 2′s score is on account of “commitment and risk” and “responsibilities” — presumably things that “need to be done.” But what if founder 2 doesn’t follow through? Founder 2 receives more shares but doesn’t really deserve them based on the agreed formula!That’s where a good partner agreement comes into play. Not only do you want to allocate ownership, but you want to re-allocate ownership if either partner fails to deliver. Investors routinely subject founder shares to vesting, but there is no rule that says that founders cannot, or should not, impose vesting on themselves. Indeed, to allocate founder shares based on expected performance is foolish, unless there is a mechanism for holding co-founders accountable. And the vesting doesn’t necessarily need to be time-based either. The founders could agree on a set of objective goals that, when met, release a specific number of a founder’s shares from a right of repurchase.
Finally, I might also add that, at least in my view, founders tend to give too much weight to things that have been done and far too little weight to things that need to be done, in allocating founder shares. Yes, the idea gets things started and definitely excites. But at the end of the day, its execution that really matters.
Joe thanks for the insightful comment. Last weekend at Seattle MindCamp we had a session on this topic of “How to divide co-founder equity” and we did talk about there being too much emphasis on what was done in the past and not enough about what is actually going to get done. One idea that we came up with was to allocate a portion of equity to the co-founders and set aside another portion of of co-founder equity that could be allocated or earned by the co-founders in the future. We’re also working on an iPhone app to build this kind of calculator so that people can figure this out in a meaningful way rather than just agreeing to split the equity evenly among the co-founders.
was that App ever created?
thanks
Your last paragraph actually describes a situation I am in.
I was originally hired as a contractor, developing a SaaS app from scratch, including DB design and coding. Along the way, I was hired full time (I believe about 8 months after I started), a coder from India was hired and another contractor was added to the team. The salary offered (and accepted) was quite low. 65k when the industry standard is 120k.
Now this application is being spun off by the founder as it’s own company. I am being offered a single digit percentage of outstanding shares, which I believe is based on the founder’s application of a share distribution as though I am in a CTO or a Director Of Engineering role. I feel that my gamble of 55k/yr (or 220k over 4 yrs. of vesting) deserves more of a share distribution as that of a co-founder. After all, I essentially created the product.
What I’m wondering is am I off base in this? In relation to the founder, is there an equity percentage that would be fair?
Thanks for any thoughts!
Mr. Veteran,
It’s hard to say whether, in the abstract, what you’re being offered is “fair.” In my experience, though, most equity splits reach the point of being fair when all the principals agree that it feels about right; clearly you don’t think so, which means it’s arguably not fair.
I’m happy to chat with you further about it if you want to give me a call. I can probably help you develop a negotiating strategy, and am willing to consult initially by phone free of charge.
Thanks for the offer Joe. I’d like to take you up on it. How shall I contact you? You can email me at thnkspc (aatt) impressthenet dot com.
P.S. I was having email issues earlier which have since been resolved. If you sent an email already, please resend.
Thanks.
How is the app coming along ;) ?
Still haven’t built the app yet… but it’s on the list to do still!
Great Job Peter!
This is an excellent supplement that many entrepreneurs could use to design compensation plans that make sence.
Thanks Joseph. Appreciate you reading this!
Your blog post does a great job of helping startup founders know a bit
more about how to approach big equity decisions; between you and David Crow, there’s also good acknowledgement of the value of giving enough equity to non-founding startup execs to ensure they truly feel they’re owners of the business & vested in its success. Not nearly as much information exists,
however, to help non-founding startup execs know what they need to know
to avoid getting taken for a ride by investors & founders, who very
often take advantage of severe knowledge asymmetry. The employee buys a
dream (a big part of making them feel emotionally attached) of making $X on equity, but reality is usually some fraction of
that, in part due to lack of knowledge on the part of the employee, and
omissions/lies on the part of founders & investors.
I’m doing research on this topic right now and created a survey asking
non-founding startup employees 10 questions to gauge their level of
equity knowledge:
http://www.surveymonkey.com/s/CTL3V93
So far, the results confirm this knowledge asymmetry and its impact on common shareholder equity outcomes.
Knowledge asymmetry is the primary basis for profit in equity transactions. Consider the stock exchange, knowing something that will effect the price of a stock before it is well known allows you to make the right move with the stock.
The same is true with employee equity. The greater the inequity of knowledge about the company, the easier it is for the seller, in this case founders and investors through the Board of Directors, to provide the fantasy that improves the value of the equity involved. This is like the notorious used car salesman who sells you a car that may be a lemon, and he knows it.
Peter, this is a great approach for founder equity. What approach would you suggest, however, in establishing founding equity for three partners, where two of them have their individual companies that are being merged to create the new one? How do you determine what the third partner’s equity share should be?
Dilone, I hope you figured out a solution to this. It’s not a easy one to figure out. It’s way more complex when you have people that have other companies being merged into one. If I had to take stab at this I would have probably need to know what the value of the those other companies are. Like hire a company to determine what the fair market value is for each of those companies as if they were to sell it. From there you would be able to determine how much equity they would get in the formation of the new company. For the third partner’s equity since they don’t have a company they would need to put in cash to match or they would end up with a significantly less equity percentage.
Your answer is quite clear, with an exception. If the gestalt of the merger is expected to be significantly greater than the sum of the company values and cash, then the difference may be used as founders’ shares and split appropriately.
2 questions, how you’ve calculated percentage? Second, weight total is 27. Shouldn’t be 10?
If an employee joins for 10% equity with 10 shares out of 100shares. Can a founder further make this 100 shares into 1000 and give himself 990 shares keeping employee with 10 shares? Thus employee ownership goes down to 1%. Is is possible?
You’d have to look at your stock options contract. You would want to check and see if your shares can be diluted. Yes, you could be diluted from 10% down to 1% and there’s a number of reason why that could occur.
If the company raises money and they are acting fairly about it, then you should expect to see your percentage of equity also become diluted as well as theirs. Dilution should occur across the board. However, there’s been instances where some people’s shares dilute while others do not. You’d have to be read the fine print and consult a person that understands contracts really well.
It is fine if money is raised and even founders equity is proportionally diluted. But is it legally possible for him to do so without raising money just as a fraud. What caution should be taken by anyone before joining for equity?
If you’re working for equity and you want to make sure that your percentage does not get diluted then you would need to make sure that you have an anti-dilution clause in your stock option contract. You can have it worded in a way where it does not dilute unless the company raises money and then it will dilute proportionally across the board of all shareholders… or something to that effect.
I was doing more reading and I think these are some good questions an employee with stock options would want to know the answers to:
Do you know the total number of shares outstanding in the startup you work at?
Is the preference structure for preferred shareholders at the startup you work at Standard Preferred or Participating Preferred?
Should your startup be acquired, do you have legal control over what role, title and responsibilities you’ll have post-acquisition?
What type of trigger clause do you have in your startup options agreement?
If you have a trigger in your options agreement and are aware of what type of trigger you have, did you negotiate the trigger language or accept what the startup proposed to you?
This depends on the state in which the company was incorporated. I believe in California, without actually buying shares or having a grant from a non-biased Board of Directors, the situation as described is fraud as the CEO is breaking his fiduciary duty to the minority shareholders. I would seek legal counsel on this matter knowledgeable of the corporate laws of the state in which the company was incorporated.
Hi,
I have a question – I’m in a situation where I was offered to establish a start up, be the first employee, gather a team and be positioned as VP R&D. The idea is not mine and there is an initial funding for it. What is the equity I should expect (protected from dilution)?
I wonder what you decided. In general, if the company is paying market rates in salary, then the table above plus a founder’s bonus grant, is appropriate. If on the other hand you are being paid anywhere between nothing and 20% below market rates, then you should receive a proportionate rise in the equity offer. After all, you have to build a business and generate your own salary. The further the concept is from coming to market, the bigger should be your equity piece.
Sorry I missed Uri’s first comment… just catching up on this.
Thanks Harrison for posting a comment… I agree with you. Uri, every thing is negotiable and it really depends — if there is
already some initial funding does the company already have a valuation?
Is the company a billion dollar business or a million dollar idea. I
would say those kinds of things also should be factored in when determining
how much equity might be granted to you.
Pingback: Reality is a Game » Blog Archive » Dividing Equity in New Ventures: Use a ‘Pizza Reference’
Hi, Great post. I have a few questions and I would love to get your thoughts about some specific situations which might work in different ways.
Can you post also a few template stock option scenarios for employee, Board of Directors and Advisory Board? It is possible to explain more about how stock option price should be determined when startup is looking for 1round? When is the most appopriate time for founders to make agreemnet with others; before or after 1round or is to too early? What obligations are common for employee, Board of Directors and Advisory Board when they execute their stock option and become owners? Which triggers are very common when someone want to sell a few stock? How internal stock price should be determined in closed companies and who is able to buy/sell stock and in which order or %.
Thanks, Samo
Some of the images in this post are missing now. Replaced with “[table id=12 /]“
Thanks for letting me know. I just fixed it — pluggin issue!
Hi, I just started my first Business Venture. I am 60 years old and decided to create my own Company, as a resources for my retirement. Based on the Economy, It seemed to be my only option.That is to create not only a residual retirement income for me, but for my children and grandchildren to be passed down to each generation. Like I said it is my first Venture and I am still in the building and implementation process stages of development . I have not only been able to teach my self SEO but I have already built my own Website for the Business. My question is then, I would like to forecast a projected value on my Business, divide it into shares & sell 30 to 40 shares to gain capital investment for my Business. Can any one help….. Thanks.
That’s a nice approach to create a business for your retirement and to leave a legacy for future generations. Regarding your question on coming up with a valuation for your business and figuring out how to divide shares for investors, I would recommend that you talk with a startup attorney. They will likely be able to guide you in that process. If they really like your business idea they may even make introductions to investors that might want to even fund your idea.
Pingback: A Few Things About Startup Equity « Start Jeffrey Up
Hi Peter, I like your comments and I reviewed the founders pie calculator for the first time today. I just finished writing a book on this topic (also about pie) and I would love your thoughts. The book is called Slicing Pie (www.SlicingPie.com) and if you send me your address I’ll mail you a copy.
Hi Mike, thanks for the comment. The mailing address for thinkspace is: 8201 164th Ave NE, Suite 200, Redmond WA 98052. Thanks!
Hi Peter, I just got the most recent copies in so I’m mailing yours today. Sorry it took so long!
Peter, did you get my book?
Mike,
Thanks for sending me the book. It’s on my short list of books to read. I’ll be sure to let you know what I think after I’m done!
I’m experiencing an issue with folks who may be good as advisors and facilitators, don’t want to join full time, are not techies at all and would like to keep their current jobs. Yet they expect 20% to help out with connections ? How does that work out ? Wouldn’t that be ‘equity suicide’ ?
Hi Rajive, 20% of equity to make connections sounds like a lot of equity to give up. Perhaps you want to let them know what the industry standards are for advisors in terms of what a advisory board member would receive.
Since I don’t know anything about your startup, your idea or how much money you company could actually make it really hard to tell you what to do. I would make sure that if you give up equity you have that equity vest over time. Do not do immediate vesting.
Making an introduction to a contact doesn’t guarantee that anything will happen. That doesn’t mean that person will be a customer or commit to buying anything. What happens if you decide to give up 20% to advisors and nothing ever happens? It would kind of suck to have you work for the next five years and give away 20% to people who just happened to make a few introductions to you.
Good article, I am in the process of developing a tool for oil and gas industry. I have two co-founders. We are in the design stage and have not tetsed anything. When do you think it’s a good time to talk about deviding the future company share?
For me it’s always been best to have the serious discussions about equity in the beginning. Get the tough questions addressed and flushed out while everyone is calm and not under stress. Inevitably things will go sideways and you don’t want to have discussions about things like this at that time. It helps remove drama and hopefully keeps friendships together when things do go sideways.
Peter, thanks so much for the information. Question for you. The percentage as described for the founders, I would assume would be 100 percent. When you start talking about equity/owership percentages for everyone else (CEO, Director), are you diluting this from the 100 percent between the 2 founders?
Mister – interested what you ended up deciding? did you dilute from the 100% of the shares between the 2 founders? Or did you had set aside shares for such cases?
Mister, yes, start with the whole 100% and carve up some for the two founders. Think about whether or not you’re going to have investors, going to give away some for employees. You could even set aside some unallocated for surviving founders (assuming both partners don’t stay the same duration).
What is the difference between standard preferred and participating preferred?
Great article, this really helped me get an understanding on this subject.
wonderful information Peter. One of those posts where the comment stream caused is just as valuable.
Peter, I am looking to hire a COO to begin putting in the structure needed to increase our marketshare. We have a guy with great experience working as a consultant we would like to give an offer. My five year old funded startup (3 years building software) has built a solid, valuable technology with a growing customer base that has us close to breakeven ($180k a month). Its time we go into broader markets. We, 12 of us, still have startup salaries and I think I can get past that with him, but the equity is where we are farther apart. You speak a lot of what is fair. I provided the above information to see if you could help me understand what is fair. We need growth capital and are about to start a round and I think he can help with that, but should his equity percentage be based on todays numbers or where we will be 3-4 months after he is hired. IOW, is it fair to hire and then dilute? Lastly, how much stock is appropriate? How much of that should be incentive based? THANK YOU SO MUCH!
Managers should get the same as a Jr. Engineer? When about an Engineering Manager?
IMO, I think they would be higher than the Lead Engineer which is 0.5 to 1.0.
I am inventor,idea,business plan is mine,100% investment is mine.what method apply in this case,when join another investor?
Why do you need another investor? Why not just hire employees?
Thanks,Peter,gud idea,but how we select that who is right person for us,to business extension,now we are giving some salary+sale incentive.can you sugest about criteria when we choose employee?
Perhaps it would be best for you to think about what you are really good at and then hire people that fill your knowledge and experience gaps. If I were in your situation, I would write a complete job description with the roles, responsibilities, and what you would see as a successful outcome for that position. Define what is an A Player in that position. If I were not able to do this I would not hire anyone because I know I would end up making a bad hire.
Peter, thanks for the site. My partner & I have been working on a SaaS model for past 2 years. He invested 50k and is bringing contacts who will use software. I started working on the project 2 years ago and was offered 40% of early on, and accepted. So far, we have paid programmers to help get it to is point. We’re one month from launch and are starting to think of our long term team. We have a senior level programmer / architect that is inerested in joining our team part time until we ramp up and is willing o come on full time. What type of percentage is fair if he will oversee software development? Or is that the right way to go? we dont have much more capital so we cant just pay high salaries at this point. Thanks a million for any input!
I have a hard time giving up much equity to a person that is part-time. Since you’re already 2 years into this and a month away from launch, I would think a full-time lead developer would be 1% or less. If you’re looking for a CTO you will need to give up more than 2-5%.
The amount of equity a person should get should be dependent on a couple different factors. Firstly, you and your partner have already devoted 2 years into this. Years of time and money to get to this point. Hands down you guys get most of the equity. A person stepping in now is not even close to the same kind of risk exposure, they didn’t quit their job, they didn’t put their savings into this, they also are not assuming any of the liability that you both have put into this. I see and hear this often where someone thinks they should get double digit equity and the company has been already operating for years. They fail to look at the risk and liability that the founders have taken on and just look at what they think they are going to be contributing. Plus when a person isn’t going full-time, they have one foot in and one foot out, I could not even call that as being committed.
I suspect that you and your partner are the business / sales experts? If yes, I’d think that you’d want to just crank on the sales as hard as possible and get as much cash generated as possible. Once you show that you have revenue, the person that steps in will get even less equity. Equity goes to the one’s that take on the most risk. If this developer person were to quit and jump in now before launch, I would say that shows how much they really are committed to seeing this be successful. There’s no shortage of high salaried developers.
Thanks for the reply Peter. It cleared up several things for me. When you mentioned a cot getting between 3-5%. Do you mean that on top of their salary? And what would you discount their salary if that’s the case? I appreciate your input!
Very hard for me to answer your question, I don’t have enough information… however, have you considered doing a mix of options: perhaps give the person two different options. One where the salary is higher plus 3% equity (vested evenly over four years) and then a second option with a lower salary plus 6% equity?
Now if I give you idea about our profile:
Me (A)- 4 years of exp, engineering degree from India then MS from US. I can invest 50 to 60 percent of capital needed.
second partner (B)- Engineer and has around 9 years of exp. He can invest upto 50% of capital needed.
Third partner (C)- Fresh engineer with no capital and no exp but committed and will work with no salary.
It was my idea to start the business but yes definitely need a committed team. Using your calculation chart I have assigned 50 to myself, 40 to B and 10 to C.
Pleas advise on this.
Thanks
Sorry Peter my some portion of my above comment didnt post. Earlier I said that two of us decided to start a company. A that is me is full time devoted to it. My other partner B has his job too (he needs approx 4 hours per day for his job). we both can invest capital. 3rd partner cant invest anything right now. Please help us in distributing equity.
Weight A A B B C C
Idea 7 9 63 8 56 1 7
Business Plan 5 8 40 6 30 1 5
Domain Expertise 3 3 9 4 12 3 9
Commitment & Risk 7 10 70 7 49 2 14
Responsibilities 6 8 48 6 36 2 12
Total points 230 183 47
% of total 50% 40% 10%
This is how i used your chart. Apologize for improper headings as i had hard time in pasting chart here.
Based on how you allocated the numbers it seems reasonable. Be sure to think about a vesting schedule for the founders and also setting aside equity for investors and future employees.
Thanks Peter I will definitely think about these things.
Peter,
Your article was great and it really helped clarify some of the things I have been dealing with. I am in a startup company with seven other co-founders. This is the first startup I have been in that has actual potential. We have been putting off trying to figure out the equity structure and corporate agreements for several months. Now we have serious investors looking at us as we have had lots of positive feedback. I have a love for entrepreneurship and startups, I always have. However I am completely utterly new to the legal side. I am 19 years old, I know I have lots of value that I have given this company. Our other cofounders consist of people that have more experience in the legal set up of companies side than me. I really just want to know if the offer that was given to me was one that is something I should feel confortable with. I would greatly appreciate it if you would offer me some guidance as this is becoming extremely difficult. Thank you.
Brandon
Brandon, thanks for taking the time to read this blog post. I’m glad you found it to be informative. My recommendation to you is hopefully you have advisors, people outside of these seven co-founders, that you can talk with. Perhaps other entrepreneurs who have been there and done things in the past to review something like this. Before you sign anything I hope you have good legal council.
Peter, thank you for responding to my message. I really appreciate it. I hired a lawyer to look over the documents and ensure that it is something that I should feel confortable with. I will definitely try to find someone to that has done this in the past, however I am finding that to be quite difficult as many of the entrepreneurial people in my area know one of the other cofounders and have heard about what we are doing. Thank you.
Brandon
Hi Peter, being an engineer, I definitely am in tune with quantifiable methods to most analysis, therefore I like your simple, but quantitative approach. I am in the process of starting an microbrewery. In anticipation of this, I went to school and acquired my Master Brewer certification in 2011 from the American Brewers Guild. In 2012, I left my day job and started and completed writing the business plan. Then I took that plan and started fund raising. I am just 60K shy of my 750K target, having set up a number of personal loans to me from “family, friends, and fools” (giving up no equity) as well local economic development agency loans, requiring my house as collateral. I am in the process of recruiting key personnel, and placed an advert seeking potential “partners” who could bring considerable funding to the table. I’ve found two persons, one who would contribute 40K and one who would contribute 20K, thus rounding out to target of 750K. But neither of these candidates will be on the hook for any of the loan repayments or provide any collateral. Further, I will need to do the brewery build-out for the next 9 months collecting no salary, while those two individuals retain their current day jobs. But I would expect if they commit that they will provide some level of sweat equity during that 9 month time-frame. Then they would join 1 month before I open up for production. The 40K contributor is willing to work for no or reduced salary for up to a year or two after joining to ensure we have adequate cash flow buffer. The 20K contributor has made no such offer. It seems that perhaps one missing row in your spreadsheet should be “financial risk to individuals”. While I know that I can not go it alone, I will need this key help to get up and running. There are probably other options from the two persons I’m currently engaged with, but I have not yet fished extensively for other talent. The 40K contributor who is also willing to work for “sweat equity” wants to be considered a partner. What is your advice, along with pros and cons, on how to negotiate this situation? Thanks very much.
John, it seems like you have to figure out what would be the salary for each of you and put a dollar value to your sweat equity. Instead of just issuing stock/equity convert that into actual dollars if you had to pay yourselves back later in the future. Once you determine that value of your time you can convert that into equity percentages.
About to launch our SaaS product. An uninvolved contact of mine introduced us to someone who is now going to become our CEO, and this CEO has now raised $3m in financing. This contact now wants to become one of our very first employees, which we are happy about. The question is what sort of equity do we give this person, under the unique circumstances (introduced us to our CEO, who then raised $3m in funding for us). I feel like this contact of mine has connected us to huge value, even though they didn’t directly create it. Anybody have any advice or thoughts?
Hi Jeff,
Thanks for posting this. One thing that is expected of advisors is that they open doors and make connections, not just give advice. Perhaps since this contact now wants to be an employee, you treat the act of making the introduction similar to that of an advisor and provide this person with what you’d give to an advisor which would be another 1/2 – 1%.