1. I am a veteran in a particular sector. 2. I was working for someone, but, an opportunity has come my way to do it on my own. 3. Some savvy business leaders want me to work with them as partners and keep doing what I have done all these years. 4. Question is: (4a) If I set up everything, give my time, effort and trade secrets: how much equity within the company should I ask for without looking too greedy or entitled? (There are currently 3 other people involved) (4b) Currently, the startup (an LLC) has just been formed and only has one owner - the Agent who registered the company. Should I ask for shares upfront before committing or sharing any trade secrets? What risks remain if no shares are issued to me right now? (4c) My previous boss may not appreciate me going off on my own. How do I leave without angering him too much?

Building the product may be the easy part of your startup challenge. Level of responsibility and time allocated. Co-founders only able to work part-time, with responsibility and major income sources elsewhere, don’t carry the same risk as others with more operational responsibility. Less dependence or startup success, or more cash compensation, generally means less equity assigned. Investors may not be called co-founders, but they always get equity, commensurate with their share of the total costs anticipated, or share of the current valuation. The challenge is for real co-founders to keep their equity percentage above 50 percent, or they effectively lose control of operational decisions. If none of these five items is a clear differentiator in your case, a logical approach would be to assign each an equal weight of 20 percent of the total, and partition the total equity based on each co-founder’s correlation to each variable. A friend or family investor thus might get 20 percent of the equity, even with no business activity contribution. Even with an agreed initial equity split, it’s smart to have founder’s stock actually issued or vested over a period of at least two years, on a month-by-month basis. That way, if one of the partners disappears, or their role changes, a portion of the equity can be re-captured and reallocated to the other members. In all cases, roles and titles should be clear, but not necessarily tied to any given percent of equity. In other words, the CEO need not be top equity owner, but should be the one with the most business skill and experience.
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Answered 3 months ago

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