Business Development · Entrepreneurship

How would you structure and equity position?

Barry Resnik Strong business acumen built on innovation and finding divergent paths for growth.

June 28th, 2021

Recently launched a unique website (www.togethervideo.com) and need to someone to take a leadership position to drive strategy and growth. How would you structure the equity position to attract an individual to take over day-to-day control? Keep in mind, I want a visionary as well as someone that can get dirty with the details?

Mike Moyer

June 28th, 2021

There are lots of ways to do this, but only one that is fair. The fair way, called Slicing Pie, takes into account the fair market value of each person's risk to split the equity. This means it is based on real, actual, observable events. As things change over time, the Slicing Pie model adjusts accordingly.


The other way is every other way. All other equity split methods are based on predictions of future events. And, because it's impossible to predict the future, all other equity split models must be renegotiated over and over. Each time the split gets renegotiated the relationships between partners deteriorates. It's an endless, negative spiral.


You can learn all about it at www.SlicingPie.com

Chris Teodoro Entrepreneur

June 29th, 2021

I'm currently a co-founder who was recruited and brought in by the original founder as COO (he is the CEO/CTO), and I'm speaking as a potential leader and partner in a business venture.


First, I need to know that you've done your homework and that the concept is worth my time and worth fighting for. Show me a pitch deck and show me your traction, numbers, runway, and other pertinent factors that will affect my decision. I need to be convinced that you believe in this concept enough to fight in the trenches with me.


Second, offer me real ownership (I was offered 50%, and we've already raised seed and now into series A). My participation will be a major component of your success. I need to know that you are just as invested into this as I will be.


From your message it sounds like you built something and now want someone to drive it and do all the hard work. What will you be doing? What are you offering to make this compelling to a competent founder who knows how to grow and scale a company?

Curt Sahakian Attorney

Last updated on June 28th, 2021

Top priority is to find the right person.


In the process of selecting and learning about the candidates, pay attention to deal structures they have watched or participated in, in the past.


Then attempt to mimic what they know and are comfortable with. Only error on the side of making it a bit richer.


Once you have identified what they are comfortable with, you want to make sure it deals with divorce.


What happens if things don't work out. Seek out their input. But require that the deal structure needs to enable a second attempt with someone else.


Keep in mind that if you grant a contingency equity interest, with an earn-out to remove that contingency. You can create some adverse tax issues for them if they are successful.


See: https://www.law.cornell.edu/uscode/text/26/83


One solution to this is a Section 83b election. But that itself can generate tax consequences depending on the facts of the particular situation. This becomes not such a big deal if you are paying them a real salary. If they are working for free, it likely becomes an issue, provided they understand what they are getting into.


Curt Sahakian, Esq.

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