How much equity should I give this All-Star?

[Scot]

All that sounds great... I was pretty sure you knew all of that anyway.



Just a curious question: why would you put a marketing guy in an ops position? Why not make him CMO?

I'm not really sure why the mega corp he previously worked for called his position marketing. It wasn't really marketing at all. Brand Manager was a much more suitable term for the position. Most of his skills lay in brand strategy, efficiency, and margins, not the actual marketing/advertising side of things.

 

[SuccessATX]

We've reached an agreement.

Bob (not his real name) will be given 15% equity in my company, which will vest over 4 years. I see this as a win for both of us. The experience he brings to the company is incredible. But more importantly, the legitimacy his name and experience bring will be helpful in many deals, including fundraising. The most common pushback we got from potential investors was my lack of experience in the food and bev industry.

Here's the main points of the equity agreement we've reached.

Bob will agree to work for Super Awesome Corp in an evolving role in exchange for 15% equity in the company. Once company is converted to C Corp and shares are issued, equity will be in common stock.

Equity will be vested over a 4 year schedule.
• 1/4 of shares will vest on day 366 from start of contract
• 1/48 of shares will vest on the first day of each month following the initial 1 year vesting portion

Repurchase Clause
If Bob's employment with the company ends, Super Awesome Corp has the option to repurchase all vested shares within 180 days of end of contract. Repurchase rate will be $9,600 per 1/48 of equity. The price is determined as follows: Repayment of 2x average hourly rate of $50/hr for someone serving in this role, for 3 days (24 hrs) per week.

Buyout Clause
If Super Awesome Corps is acquired, sold, or merges, all unvested shares will immediately vest as of the sale to allow Bob to benefit from the acquisition.

Congrats!!! Sounds like a solid deal for both of you.
Now that you have a fair deal in place, go crush the market!

 

[Scot]

I think it was mentioned in your other thread, but I'd make sure no equity vests until at least 12 months in.
And have a way to keep it from vesting if he turns out to be a dud.

Oh yeah, 100% this. He would have a 1 year vesting cliff. At 366 days he'd be granted 25% vesting, then 1/48th of this shares vest monthly after that.

 

[Scot]

This gets rid of all your major concerns. Is there a reason you wouldn't do this?

I think this guy will be very valuable on multiple fronts. So, yeah, if we both feel comfortable with the equity and the way it vests, I'd definitely bring him on board.

I would say anywhere between 10-15%, build in a vesting structure that mitigates some risk on your end.

Sorry, I didn't see your response as I was responding to @CareCPA Pretty much mimics what I wrote to him above.

 

[MTEE1985]

Without sharing exact numbers, what is your timeline for exit and what do you believe the business will be worth in 2,4,6 years with his help vs. without?

If he can shorten that timeline considerably to a buyout then why not bring him on at a decent % (10-15)?

Can you call Doug and ask him what he thinks?

 

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[Scot]

A key component of the agreement was that either of us could cancel the agreement upon 30 days notice. We also had a repurchase clause where if the agreement was terminated, we could buy back her shares at a pre-defined price. This price was equivalent to 200% of her market hourly rate for 20 hours per week. Since she could earn 0.5% in a month for roughly 80 hours of work (4 weeks x 20 hours = 80 hours) we could buy back each 0.5% of the company from her for $9,600 (80 hours per month * $120 double market hourly rate).

I wish rep$ was still a thing, because I'd dump some good rep$$ your way.

This bit I quoted is REALLY helpful. It's not something I thought of, but something I will definitely add in moving forward. I've already made it clear to him that if we don't work well together, we will part ways in a way that does not hurt the company. Part of that is the 1 year cliff on equity, but the buy back will be very important.

Thank you for sharing all of this.

 

[Scot]

This guy has the chance to make the company. Up to 25% based on metrics achieved. 75% of 10,000,000 will always be worth more than 100% of 2,000,000. Overnight VC funding with him on board.

That's the hope!

 

[FierceRacoon]

A key component of the agreement was that either of us could cancel the agreement upon 30 days notice. We also had a repurchase clause where if the agreement was terminated, we could buy back her shares at a pre-defined price. This price was equivalent to 200% of her market hourly rate for 20 hours per week.
....
She made 3% total and the proceeds for her from the sale were worth far more than the equivalent hourly rate that she put into it.

And what is now preventing you from terminating her and paying her this 200%? Integrity, I hope. But clearly, it was a terrible deal for her.

 

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[Scot]

I highly highly recommend a book called Who?, by Geoff Smart. It's a quick read, no fluff guide on finding, vetting, and defining your needs for various team members. Especially useful is their interview guide that helps cut through 99% of the fluff that typically pads resumes and interviews.

I'll check that one out, thanks!

 

[csalvato]

All that sounds great... I was pretty sure you knew all of that anyway.

Hey, the former VP of Marketing for this number one brand you know is our COO because he believes in our mission" it will assuage a lot of concerns that investors will have over my (lack of) experience in the CPG space.

Just a curious question: why would you put a marketing guy in an ops position? Why not make him CMO?

 

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[floridaman]

I'll just leave this resource here.

Slicing Pie | Slicing Pie, The World's Only Fair Startup Equity

You have found the world's only fair startup equity calculator!Slicing Pie is a universal, one-size-fits all model that creates a perfectly fair equity split in an early-stage, bootstrapped

slicingpie.com

I've worked in the startup world for the past 6 years and this book is referenced a lot when it comes to equity splits.