Startups Stack Exchange Archive

How much percent of the company do I give

posted by: m1alesis on 2016-12-08
tagged: equity, investors, stock-options, shares
score: 2

I am starting a technology startup. I have a friend who I know for quite a long time and has a very good network of potential investors. He has agreed to take the responsibility to bring investors to the company. He has also promised that if he fails to get investors, he shall invest his own money to kickstart this startup.

We also agreed that in the long run I will be the CEO of the company and he will be a chairman.

Now, my question is what’s the reasonable percentage of the company that I give him?

We have not yet discussed on percentages yet but before we do I want to know what would be the reasonable percentages.

Answer 11690

posted by: Matt on 2016-12-12
score: 2

How much value will your friend (versus you) offer in intellectual property, time or money?

IP is important though hard to value, money trumps the others.

If you’re bringing work with you to the endeavor, that’s kinda like bringing money to the table in the form of pre-invested work product, so you could argue that you’d hold a larger share. If you’re just bringing an idea and some thoughts sketched out, should probably be an even split.

If one or the other is going to be committing more time to it, that variable could favor one or the other direction a little. But, work is more a salary / compensation thing. Stock option grants can be part of compensation to reward him for bringing on advantageous investors, things like that.

Re: money,

If your friend ends up putting the majority of the starting money up, he gets most of the company/shares, because the initial risk is his.
If he finds other investors and doesn’t put in the money, they get most of both of your shares, unless you already have revenue.
If you have revenue before you secure investors, you have leverage to claim an existing valuation and price their contribution against it. The closer you are to positive cash flow, the stronger your argument is and the smaller the share you have to give away.

IANAL, but some thoughts to help you figure it out.

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