- Allocating shares in the early stages of forming a company
- Reply To: Allocating shares in the early stages of forming a company
Reply submitted 09/08/21 @ 04:08pm::
I agree with what Jerome and Andy have said – tricky and important.
It is important for everyone to be clear on roles/status at the outset. In particular – are you the only founder and you are looking to bring some early ’employees’ on. Is that how they would see it?
OR are you looking for co-founders to take a committed plunge in the deep end with you? Is that how they would see it?
If they are employees then you would expect less shares now as they will eventually be paid (and possibly more than you for a while). You also can’t expect them to be as committed as you. Vesting from a Employee Share Options Pool (ESOP) has been mentioned above and is a valuable tool to keep things simple. If the folks you start with stay with you then they keep getting share options, but if they choose to move on then vesting ends and they must take up the option of purchasing those shares allocated to them. You can give them a very attractive strike (purchase) price.
If they are co-founders with you then you would expect more shares get allocated to them upfront – with additional allocated based on time and project achievement. Note the difference between shares outright and options.
Maybe do the thought exercise – if I gave X say 7% shareholding to bring them onboard and really sit with that. How does that feel?
If your gut response is #$*k no way, that’s too much – then take that as a guide. It has to ‘feel’ right to you or it will create a point of friction in the future…
Same if you think no way, I feel like a cheap b@#%$rd offering that – then you value this person highly and you probably have to do what it takes to bring them onboard…
You really do need to talk this through with the people you are looking to bring in with you too – it may well be the most uncomfortable set of conversations you have this early on – but so important that you do.
I hope this is of help.