founder, employee-compensation, private-company, acquisition, public-companySay there is 1 founder. No funding, no VC..etc outside of money invested by the founder. At this point obviously he owns 100% and anything made if acquired. I get that.
But if that founder hires 1-2 people. How is it decided what percent of the company they own? Should you be acquired what do they get?
Also, in the beginning since its just you, when you bring in someone to start doing work, how is anything offered to this employee made binding at that point? Do you have to have a lawyer come in proactively just In CASE you expect to get bought down the road?
And finally, if acquired, do they just give you all the money and you pay out everything? How does all this work and how do brand new startups learn all this? Everything I read and see you’d think these 20 something year olds have been running billion dollar companies since they were 5 in order to know this stuff.
Say there is 1 founder. No funding, no VC..etc outside of money invested by the founder. At this point obviously he owns 100% and anything made if acquired. I get that.
Sure. But in case you take on co-founders I would not consider it all yours up front. You should have all founders vest over a period of time (including yourself). But that will be something you need to haggle about when you get co-founders.
But if that founder hires 1-2 people. How is it decided what percent of the company they own? Should you be acquired what do they get?
That totally depends on the deal you make with these people. If they are not getting paid and working full time you would consider them founders and they deserve a large stake in the pie (nearly equal to yours). Alternatively if they are getting paid (even if it is below market) then they are employees and they deserve some but the amount would depend on how much risk they are taking. If they are paid close to market salary then they get very little shares. If they are a lot under market salary then they get a lot (where a lot depends on how profitable the business is the more profitable the less risk and thus the less shares).
Also, in the beginning since its just you, when you bring in someone to start doing work, how is anything offered to this employee made binding at that point? Do you have to have a lawyer come in proactively just In CASE you expect to get bought down the road?
Having a layer is not required. Though depending on your locality it may be be judicious. In the UK you can get starter packs for startups where you just fill in the blanks and then sign the documents. In America where things get a lot more litigious I would get a lawyer. But you can check your local better business type societies for advice.
And finally, if acquired, do they just give you all the money and you pay out everything?
No. If somebody invests equity in the company. They are putting the money into the company and they get shares in return (you will create new shares for the new equity). They money belongs to the company. Your value in the company is your shares. To get cash you will need to sell your shares (in an early stage startup nobody will want to buy shares until there is a revenue stream instead they will want you to create new shares for there money).
Also an investor will not want to give you money so that you can then raid the cash and leave the company to falter and stall (if you are going to leave nobody will invest). They will want the company to use the new money to help it grow and become bigger so there shares will be worth something and can eventually be sold (preferably for a profit).
How does all this work and how do brand new startups learn all this?
By reading all the articles on this site.
First timers eventually bring on people that have already done it before and learn from the experience (there are people that specialize in taking a startup to the IPO stage (for a nice percentage of the company)).
Everything I read and see you’d think these 20 something year olds have been running billion dollar companies since they were 5 in order to know this stuff.
:-)
Read Joel’s Totally Fair Method to Divide Up The Ownership of Any Startup
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