1. Come to us with a problem only if you want help solving it. That’s what we do. Sympathy is what your girlfriends are for.
It’s true. Solving problems is what men do.
I like to solve startup problems and this is a recent example: The founder of one of my clients wanted to take on a co-founder. The company was bootstrapping so there was no money to pay salary but #2 was willing to take equity instead of cash.
#1 correctly noted that if the co-founder had been involved from day one, they probably would split ownership 50/50. But the company had made quite a bit of progress before #2 was ready to join, how to determine a fair split?
My solution: deconstruct.
Start with an estimate of the value of the business, call it $2 million. Divide that by the number of shares, we’ll say 2 million to keep the math simple, $1.00 per share.
Next, determine the elements of compensation: salary that would have been paid, over the number of months until capital is raised and the company can start paying, plus a number of shares that would have been offered as incentive compensation if #2 had joined as a paid employee.
So if #2 would have been paid $100,000 per year and we expect him to work without pay for six months, we’ll give him 50,000 shares of stock that vest over six months. In addition, someone at his level wound normally receive options for 2% of the company, we’d grant him one for 40,000 shares vesting over three years.
This may not be where the numbers end up but by deconstructing, we’ve established a framework for a constructive conversation that is based on more than just “I think you’re/I’m worth x%.”