Questions

I'm a single founder & I'm planning to bring more people in once I complete my MVP. How many shares should I issue to myself?

I'm working on a tech product. I have incorporated a delaware corporation 2 weeks back. I wanted to file trademarks and patents under my company name. So I incorporated little bit early. I'm planning to bring more people like CTO, CFO, Advisors, Investors etc on board after 6 months. What would be the fair percentage of shares I should issue myself?

3answers

I think that's a hard question to answer in the abstract without knowing the extent of your IP, the relative market potential for the product, your desire or need for institutional investment, and the relative contributions of your future potential partners. Have you considered a dynamic equity split arrangements for the partners you wish to attract? I recommend taking a look at SlicingPie.com as one well thought-out dynamic equity split alternative.


Answered 3 years ago

Hi there. First, congratulations on thinking ahead of the need...so many of the companies I work with are 'passion first' projects and they forget that ultimately, they're trying to build a company and need to think about that structure in the beginning.

It's my experience that founders should set aside about 20% of their total shares for an 'employee pool'. That leaves you with the balance and you can raise 3 rounds (F&F, Seed and A) before you'll be diluted below 50% (and there's a way to handle the voting control even lower than that).

As you bring on your C-level folks, they'll be awarded 3-5% vesting over a 3-4 year period with a 1 year cliff. That's reasonably a standard way to handle things but of course, every situation can be different.

Again, congrats on your desire to go for it and best of luck!

Brian Slawin
Portfolio Manager @ Ben Franklin Technology PArtners


Answered 3 years ago

When opening a new corp, it's a good idea to issue initial shares in large enough quantities which would allow you to offer them to other team members later on. I would suggest something along 1-10K. At this point you own 100% of shares.

Once you do decide to bring someone on-board, you may decide to offer them a certain stake in the company. You should always think of that in terms of how much would that equate in terms of actual money. Lets say you hire a COO and you agree that he/she would be interested in earning 150K annually. Since you currently can only offer 50K, you would offer the other 100K in equity. Now if you forecast your company to evaluate at 2M at some near future, then each share (assuming you issued 1000) would effectively be worth 1K, so to compensate someone with potential earning based on future valuation you may want to offer them 100 shares. This means that now you own only 90% of the company. Hope this gives you general idea.


Answered 3 years ago

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