Later, when you have money, you'll pay them back in cash. Instead, just keep a ledger of how much you paid each of the founders, and if someone goes without salary, give them an IOU. This is just going to cause conflicts.ĭon't resolve these problems with shares. The trouble is that you can never figure out the right amount of shares to give. It is tempting just to give the founder who went without pay more shares to make up for it. What happens if not all the early employees need to take a salary? A lot of times you have one founder who has a little bit of money saved up, so she decides to go without a salary for a while, while the other founder, who needs the money, takes a salary. So you make another 2500 shares and give them to the VC. It never makes sense to give anyone equity without vesting.ġ/3rd of the company is 2500 shares. Otherwise your co-founder is going to quit after three weeks and show up, 7 years later, claiming he owns 25% of the company. A good vesting schedule is 25% in the first year, 2% each additional month. Nobody earns their shares until they've stayed with the company for a year. Now that we have a fair system set out, there is one important principle. However you organize the stripes, it should be simple and clear and easy to understand and not prone to arguments. Your top stripe is the founders, below that you reserve a whole stripe for the fancy CEO that you recruited who insisted on owning 10%, the stripe below that is for the early employees and also the top managers, etc. Make sense? You don't have to follow this exact formula but the basic idea is that you set up "stripes" of seniority, where the top stripe took the most risk and the bottom stripe took the least, and each "stripe" shares an equal number of shares, which magically gives employees more shares for joining early.Ī slightly different way to use the stripes is for seniority. The earliest employees who took the most risk own the most shares. Each employee layer owns 10% collectively. They get fewer shares because they took less risk, and they get 50 shares because we're giving each layer 1000 shares to divide up.īy the time the company has six layers, you have given out 10,000 shares. They hire another 20 employees in year two. These four employees each take 250 shares. There are 5000 shares outstanding, so each founder owns half. Each of the next five layers should end up with about 10% of the company, split equally among everyone in the layer. The founders should end up with about 50% of the company, total. OK, now here's how you use that information: There might be two founders, five early employees in layer 2, 25 employees in layer 3, and 200 employees in layer 4. By the time your company is big enough to sell to Google or go public or whatever, you probably have about 6 layers: the founders and roughly five layers of employees. By the time they joined the company, it was going pretty well.įor many companies, each "layer" will be approximately one year long. These people didn't take as much risk because they got a salary from day one, and honestly, they didn't start the company, they joined it as a job. By the time you hire this layer, you've got cash coming in from somewhere (investors or customers-doesn't matter). The second layer is the first real employees. quitting your jobs to go work for a new and unproven company. There may be 1, 2, 3, or more of you, but you all start working about the same time, and you all take the same risk. The top layer is the first founder or founders. And if you just say, "to heck with it, we can NEVER figure out what the correct split is, so let's just be pals and go 50-50," you'll stay friends and the company will survive. Why? Because if I split the company 60-40, the company is going to fail when we argue ourselves to death. That is why I would always rather split a new company 50-50 with a friend than insist on owning 60% because "it was my idea," or because "I was more experienced" or anything else. Almost everything that can go wrong in a startup will go wrong, and one of the biggest things that can go wrong is huge, angry, shouting matches between the founders as to who worked harder, who owns more, whose idea was it anyway, etc. The most important principle: Fairness, and the perception of fairness, is much more valuable than owning a large stake. Hopefully in the future when someone on answers.onstartups asks how to split up the ownership of their new company, you can simply point to this answer. This is such a common question here and elsewhere that I will attempt to write the world's most canonical answer to this question.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |