finance, sharesThis is more of a finance related question. I’m invited to join a startup that has already developed a product and currently have managed to make a bit of money from a couple of clients. They’ve already spent time and money into its development. However they wish to avail my expertise, time and knowledge as well as future investments and have offered a partnership into the company in hope that we will collectively be able to grow the product into a much bigger platform.
We’re currently unsure of how this will work. Say they have invested $100k already. Their incomings from it are $5k monthly. We can somewhat determine its current value. However we are aiming to make $30k monthly (theoretically) with our collective input eventually. With this calculation, their initial investment will break even after 3.5 months roughly. The product will continue to develop and we will both be expected to play our equal part.
What percentage split should we be looking at? Currently they have offered me 30% share (no initial financial investment in terms of buying any of these shares, but instead sharing of all immediate and future expenses equally). If we are putting in equal (50% each) efforts, money and time moving forward, and the incomings result in covering all initial costs and investments involved after a few months, would it be fair to stick to a lesser share forever? Should we be looking at a revision of this share in 6 months if I agree to it now? Obviously this is all in the air, we may not meet our targets, but in the event we do, is it fair to say the two partners are now equal shareholders and the split should be 50/50?
It sounds like you have a case for a 50/50 split at some point in the future. Although I’d argue not immediately, as your prospective partner has put in time, effort and money prior to this point and that should be respected and recognised.
if you are getting 50/50 control then the business can run as a partnership with respect of each others expertise and nothing needs to immediately fixed with regards to share holding. I assume growth will make the business non profitable so dividends would not be an issue and also a buyout at this stage is unlikely.
In your position I would be looking to make an agreement that acknowledged and compensated their prior investment whilst increasing your share as their investment is paid off. Something like you both have a base salary which is equal and then any dividends get split 70/30 until such a time that the extra dividends they receive beyond yours have paid off half their investment (you are essentially giving them some of your dividends until your investment equals theirs).
Once half their investment has been paid off by you then you go to 50/50 shares and salary. (this will likely take some time).
The half investment payoff is obviously a negotiation point depending on the recognition needed for their time and effort prior to this point also. I am simply doing the maths based on money and currently ignoring time.
I can see a number of mechanisms to do this. You could informally write a memorandum of understanding between the two of you. Although, ideally you’d get a lawyer involved to write out the proper articles of association and deal with this all officially. They can then recommend on if you require different share types (as then you could have 50/50 shares with different types paying different dividends and then switch the share types at a designated point). A lawyer would be able to correctly advise you in this.
Alternatively you could just take a 70/30 split with a decent salary and ensure that the contracts acknowledged what control your job role has
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