equity, employee-compensationI have read all the equity split related question.
In particular, I know Joel’s guide on equity split and Buffer’s equity formula
My question is the following :
We’re a team of 3 people, working fulltime for 6 months (the founders) We have a product, a patent and some customers kicking in.
We want to add more members but can only afford to pay minimum wage (very little outside investment so far)
Will this first employee count as an employee ? so 0.5%-2% equity ?
Or as a co-founder ? so 10%-25% equity ?
Or as a co-ployee ? 2%-5% ?
The trouble is the lack of salary.
An employee will (or at least should) view stock options as a bonus. If the best you can do is offer a minimum wage, you’re technically looking for an extra cofounder.
If you’ve a patent to protect your IP and some traction, perhaps look for an investor to pour money into the company?
At the end of the day, the percentage of the company is not a worthwhile metric and the real reference point is the value (or potential value) of that percentage. If you are looking for the next employee to contribute significantly and they would be able to get a 6 figure job at a larger firm, then you need to allocate them a percentage of the company that relates to an annuity of that 6 figure income until you can pay them in cash.
It get messy, but you can introduce stock options so that if the value of the company increases, you can award him more options and dilute the original founders. That may be worthwhile to you because the overall value of the company increases and you net value of a smaller percentage is higher.
This sounds like it will be the first real hire and I would try to make some distinction that this person is not a co-founder, but the beginning of the next phase of your company. Also to note, you would want to have a vesting period for any new shares in case the employee does not last.
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