sharing with shareholders…

so one thing I havent quite got to grips with is how to reward effort and achievement in a new company. When I say new company, I really mean… one with not much cash!

The obvious (and only?) answer is splitting equity since thats all a startup company has.

the problem is, when you decide on initial shareholdings, none of the work has been done.  so, whats the best way to reward effort? How does that work?

The solution I came up with, which may be pretty dodgy, is to initially allocate a tiny fraction of the equity, say, 1% to each partner. Then, as the work progresses, each shareholder gets rewarded based on concensus. I even came up with a cool spreadsheet that calculates this, based on each partners independent assessment of their contribution.

So, does this work? is there a better way? let me know you guys have any thoughts!

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sharing with shareholders…

One thought on “sharing with shareholders…

  1. Shane legg says:

    Yeah, it’s a problem that I’ve thought about before too. In every startup that I can think of (except perhaps some single founder companies) there ends up being some degree of disconnection between how much different people contribute and how much they end up owning. My suggestion is this:

    You all agree on how much time spent on different things is worth. Each month you draw up rough plans on what short term work needs to be done, and this is then approved by the stakeholders. Then at the end of each month you present a log what has been achieved and how many hours you worked to do it. You then “charge” this money to the company, maybe after having it approved by the stakeholders. At this point the total theoretical value of the company increases by this amount, and the company can either give you cash (if it has any!), or it can owe you the amount in equity. Alternatively, people can put money directly into the company, which also increases the total theoretical worth of the company and the company then owes them that amount in equity.

    This way you always know how much the company has cost everyone, both collectively and individually. If at some point somebody offers to buy the company out for 10 times this theoretical value then the value of equity simply scales accordingly.

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