Equity Issue

[OVOvince]

I am part of a software startup. We "hired" a hyper growth strategist (marketer) who is helping us to start the startup with his experience and background. He is asking for equity + cash, or just equity, or just cash.

Since we are running "semi lean" we decided to go with either equity or equity + cash.

Thing is, my business partner doesn't want to give out too much equity, and the advisor mentioned that 2-8% equity is on the lower end (in the context of standard equity rates). He wants us to give him a number.

Also my business partner wants to structure out a plan to where the equity is earned.

How much equity should we give?

Since he is a hyper growth strategist, how should we structure it?

For example if we give him X%, should we make him earn for (x-8)% in the first year? and then so on the next year?

should we structure the equity off performance?
-- xyz amount of growth = abc% equity
-- xyz amount of revnue = abc% equity


What are some good ways to approach this? Things to consider?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[OVOvince]

bump

 

[tafy]

Base salary + % of equity if growth target is reached every year.

Problem is you cant keep giving away equity every year right but a few percent per year for 3 years, to total around 6-9% sounds ok. Maybe you should ask on Quora as there are some smart people on there man.

 

[Get Right]

If he's that good, why not put him on straight commission?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Micah Huxford]

You could always use some kind of vesting structure over 4-5 years so that you know you have commitment in the early phases.

 

[MJ DeMarco]

Since he is a hyper growth strategist

What does this mean? Does he have a track record or is this just a fancy title?

should we structure the equity off performance?
-- xyz amount of growth = abc% equity
-- xyz amount of revnue = abc% equity

If it were I, I'd be inclined to structure it based on results. Structuring it based on "growth" or "revenue" is tricky.

What if he grows the company by $1M in sales? And yet, you're gross margin goes from 25% to -12%? Sure he grew the topline, but at what expense to margin or profitability?

In the end, this can't be answered because none of us know your product, industry, margins, etc.

 

[csalvato]

If you are seriously looking up equity splits then you should talk to other people who have done that. Find them on http://angel.co.

If you are giving away any equity it should be done with a CLIFF (that is, he needs to be with you as an employee for a certain period of time).

Did you even know that option existed? If not, you shouldn't be giving away any equity until you understand how it works a bit better, imho. It will create more problems in the future if you don't have that dialed in.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[obrian]

what does he bring to the table, this is a very serious issue and it can cause alot dark clouds to surround your company if it's not sorted out the right way because if it doesn't meet his demands interms of the equity well he will find somewhere else. if you want him badly and he provides alot of value yea you guys can negotiate but if you can find better individuals to do the job well you know the trade already. i would give him cash to test him and see how he works over a year and then i would think about equity because you have alot of greedy vampires out there who wants nothing but equity to suck the shit out of companies and left.

 

[OVOvince]

Base salary + % of equity if growth target is reached every year.

Problem is you cant keep giving away equity every year right but a few percent per year for 3 years, to total around 6-9% sounds ok. Maybe you should ask on Quora as there are some smart people on there man.

You are right, I shall go on Quora to get more opinions. Though the ones here were helpful as well.

What does this mean? Does he have a track record or is this just a fancy title?



If it were I, I'd be inclined to structure it based on results. Structuring it based on "growth" or "revenue" is tricky.

What if he grows the company by $1M in sales? And yet, you're gross margin goes from 25% to -12%? Sure he grew the topline, but at what expense to margin or profitability?

In the end, this can't be answered because none of us know your product, industry, margins, etc.

Really appreciate this. The guy does have a very impressive track record, and is well known in the Energy Industry, which we are planning to operate in.

Thanks for the suggestion of result based structure. Thing is, we are still in the very beginning stages of the software (we started coding just this week).

If you are seriously looking up equity splits then you should talk to other people who have done that. Find them on http://angel.co.

If you are giving away any equity it should be done with a CLIFF (that is, he needs to be with you as an employee for a certain period of time).

Did you even know that option existed? If not, you shouldn't be giving away any equity until you understand how it works a bit better, imho. It will create more problems in the future if you don't have that dialed in.

Thanks man, I will go and do a comprehensive research on equity.

what does he bring to the table, this is a very serious issue and it can cause alot dark clouds to surround your company if it's not sorted out the right way because if it doesn't meet his demands interms of the equity well he will find somewhere else. if you want him badly and he provides alot of value yea you guys can negotiate but if you can find better individuals to do the job well you know the trade already. i would give him cash to test him and see how he works over a year and then i would think about equity because you have alot of greedy vampires out there who wants nothing but equity to suck the shit out of companies and left.

You are right, the guy is basically supposed to help us create sustainable growth. From what I've seen, so companies fail because of this. Startups these days go from 0-100 like nothing, hitting Billions of dollars in valuation in just a year or two, but many of them fail to sustain that unnatural growth rate. This guy serves as an advisor on how to achieve hypergrowth and how to sustain it. He wont be executing and testing etc with the rest of the team, but he gives us direction.