help with company shares/equity

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help with company shares/equity

Carola Derpsch
Hi all,

I've been working with someone who I'd like to offer a percentage of my company in return for his involvement/sweat equity.

Could anyone give me some recommendations on how to make a simple yet clear deal?

Thank you and have a nice day!


Carola




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Re: help with company shares/equity

David M-2
Take a look at http://news.ycombinator.com/item?id=35015 which is in  
reference to http://paulgraham.com/equity.html
--
David Mytton
www.mytton.net / www.boxedice.com

On 24 Apr 2009, at 13:11, Carola Derpsch wrote:

> Hi all,
>
> I've been working with someone who I'd like to offer a percentage of  
> my company in return for his involvement/sweat equity.
>
> Could anyone give me some recommendations on how to make a simple  
> yet clear deal?
>
> Thank you and have a nice day!
>
>
> Carola





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Re: help with company shares/equity

FTired
Administrator
In reply to this post by Carola Derpsch
Hi

1. You need to decide/come to a mutual agreement as to what work he has done, and the value of it. Once this is done you stick a finger in the air and value your company and offer him equity based on that. 

2. This of course never works, since psychologically people do not like small numbers, hence if you offer 1%, of a 1billion dollar company unless there is hard valutaion on the table it will mean nothing, so in short you need to come to a number which you both feel is okay, not too large for you, and not too small for him. Unless he stays on, you should not go past the 0-5% mark. Having said that no matter what he gets it will get further diluted, unless he negotiates a non-dilution clause

3. In return for the equity, you need to get him to sign a non-compete, non-disclose, and also transfer ownership of IP into your company, so that there are no problems in the future

4. In addition alot of people like to offer options, something which I feel is futile, simply because unless there is a proper company structure and equity scheme in place, options are worthless. You need to know what % of the total equity of the company will form options, and only then can the receiver hope to put value on the options he gets, otherwise saying you get 100000 shares means little, if the pot increase from 200000 shares to 2000000.

5. With shares you also need to determine what type of shares, i.e do you have preference shares, with special voting rights, or are these from the normal pot of shares that everyone gets. In addition once you have given him shares, you need (or should I say, should have) a shareholder agreement, which details voting rights, and what a minority shareholder can do, in terms of selling, priority offers etc etc.

6. There are a few online resources, which highlight the amounts worth giving, but this is all to back up your story when you need to negotiate, usually it comes down to a mutual meeting of the mind.

Most of what I have written usually becomes a moot point if everyone makes money, however if you make more (significantly that him) later on, then you'll be surprised at the amount of loop holes left open for him to cause you grief :-)

Iqbal Gandham
T: @iqbalgandham
S: feelin_tired





From: Carola Derpsch <[hidden email]>
To: [hidden email]
Sent: Friday, 24 April, 2009 13:11:26
Subject: [entrepreneur-1056] help with company shares/equity

Hi all,

I've been working with someone who I'd like to offer a percentage of my company in return for his involvement/sweat equity.

Could anyone give me some recommendations on how to make a simple yet clear deal?

Thank you and have a nice day!


Carola




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RE: help with company shares/equity

William Robins
In reply to this post by Carola Derpsch

Carola

 

I can help you do this, have you thought about the terms, eg ratchets, reserved matters, board make up, drag/tag along etc?

 

Feel free to give me a call off line, no need to share the deal with all our friends on the meet up list.

 

Best wishes,

 

William Robins

Partner

 

 

dd:  020 7152 6550

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From: [hidden email] [mailto:[hidden email]] On Behalf Of Carola Derpsch
Sent: 24 April 2009 13:11
To: [hidden email]
Subject: [entrepreneur-1056] help with company shares/equity

 

Hi all,

I've been working with someone who I'd like to offer a percentage of my company in return for his involvement/sweat equity.

Could anyone give me some recommendations on how to make a simple yet clear deal?

Thank you and have a nice day!


Carola




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Re: help with company shares/equity

Carola Derpsch
In reply to this post by Carola Derpsch
Great, thank you all for the help.  It has open some new areas to explore.

All the best,



Carola


2009/4/25 Stony Grunow <[hidden email]>
If you have the time, I would suggest reading The Partnership Charter (first 30-odd pages available on Amazon for free). It walks you through how to make a non-binding agreement that guides your business partnership (share-based or partner-based, it's effectively a partnership till you go public).

The partnership charter tries to have you ask questions that would never / could never be addressed in your articles of association, like what to do if someone wants to hire a relative or spouse, or under what scenarios you would take on another co-owner, etc.

It won't help you if it comes to a legal fight, god-forbid, but setting this down, ahead of time, might help negate any potential conflicts.

stony
citrusconsultants.com





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Carola Derpsch

Technical Alchemist
Cosma Consulting Ltd
United Kingdom
www.cosma.co.uk
www.twitter.com/cderpsch

+44 (0) 7883.079283




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