Questions

1. I am a veteran in a particular sector. 2. I was working for someone, but, an opportunity has come my way to do it on my own. 3. Some savvy business leaders want me to work with them as partners and keep doing what I have done all these years. 4. Question is: (4a) If I set up everything, give my time, effort and trade secrets: how much equity within the company should I ask for without looking too greedy or entitled? (There are currently 3 other people involved) (4b) Currently, the startup (an LLC) has just been formed and only has one owner - the Agent who registered the company. Should I ask for shares upfront before committing or sharing any trade secrets? What risks remain if no shares are issued to me right now? (4c) My previous boss may not appreciate me going off on my own. How do I leave without angering him too much?

Hi,
4a:
There are various 'models' that you can use to estimate how many shares/percentages your new partner should get. These include (a) his/her investment in time and/or money, (b) the current + potential value of the company, (c) the time and/or money that you as the original founder already put in and various other models. That said, at the end of the day, it's all about value and psychology (both side's feelings).

Bottom line:
1. It all really depends on how much value they are giving you (not only financial, sometimes even just moral support goes a long way). Some founder's 'should' get 5%, some should get 50% or more.
2. Ask the potential partner how much shares they want (BEFORE you name a number).
3. Have an open conversation with them in regards to each of your expectations.
4. Use a vesting (or preferably reverse vesting) mechanism - meaning that the founder receives his shares gradually, based on the time that goes by (during which he fulfills his obligations) and/or milestones reached.
5. If you want a mathematical method: calculate the value of each 1% of the shares (based on the last investment round), check how much an average CPO earns per month/year, and then you can calculate what % he/she should get for the 2-3 years they should put in.

4b. Happy to explain on a call as I would have to write another 10 lines to answer this. Very briefly though, the risk would be you not getting your shares, but if you draft a founder's agreement, you can avoid this.

4c. Tell him how much you respect him, the business and the time you worked there. Tell him that you are leaving for personal reasons. Do not tell him about the startup. Check that you don't have a non-compete class in your employment agreement.

Good luck

I've successfully helped over 380 entrepreneurs, startups and businesses, and I would be happy to help you. After scheduling a call, please send me some background information so that I can prepare in advance - thus giving you maximum value for your money. Take a look at my reviews: https://clarity.fm/assafben-david


Answered a month ago

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