Questions

A business partner I want to bring on is willing to invest more than I am at this stage in the business, but I will be more actively involved in the day to day operations. I want to give him 40% of the company and I retain 60% ownership.. Can somebody advise whether this is in normal practice and reasonable? I've never opened a business of this scale and have never brought on a partner to this capacity.

You asked this 9 months ago and by now you have probably run into problems with your 60/40 split. You probably realized that commitment levels have changed, the team has changed, the amount of money you needed has changed, and any other number of changes have forced you to renegotiate your split which was probably a painful process and you may still feel uncomfortable with the split. I hope I'm wrong, but this is a very typical scenario with fixed equity splits.

This problem could have easily been solved using a dynamic equity split. Each contribution of cash, time, ideas, supplies or anything else would be accounted for and each person would have exactly what they deserve.

The model I designed is called a Grunt Fund. It assigns a fictional value, called "Slices" each input based on the fair market value of that input and a risk multiple. A person share at any given time, therefore, is their number of slices divided by the total slices. It gives you an exact number.

I have written extensively on this topic and have a web site at SlicingPie.com. If you contact me through the site I will send you a copy of the book I wrote on this subject.

I hope all is well!


Answered 5 years ago

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