Is it possible and/or wise to design a dynamic equity split agreement with start-up co-founders?
Answers
Probably better to have the equity for all founders to vest over time or based on performance and to have a good buy/sell agreement that is clear about what happens to a partner's equity if they leave before the Company has achieved certain milestones. If a co-founder leaves early or is not able to provide the results expected, their stock (or at least most of it) will be needed to attract the kind of talent to achieve results and take the
Can you explain what is dynamic about equity. I have seen so many start up teams splitting up along the way, and having a founder agreement in place, negotiated up front when relations are friendly and optimistic , can save a lot of aggravation, and possible the future of the Company later on. And investors will be wary if this has not been resolved, since it can affect the value of their investment. The Agreement should cover not only the equity ownership shares of the founders, but what is contributed (IP, cash, debt, and description of the nature and amount of sweat "labour" expected by the Company in return, and what happens if any founder does not live up to expectations (vesting or restricted stock buy back). Additional coverage should include proprietary information agreement, IP assignments, confidentiality agreements, non compete agreements, and all the usuaakl restrictions related to stock buy back, public trading lock ups, etc.
Expert referral:
Alex Modelski
http://www.businesstechnologylaw.com/index.php
I've been involved in several Startups, both as founder and as someone coming on a little later once a things are underway. Recently, it's become a trend here in Mountain View CA to use a Dynamic Equity Split of some sort. The team dynamics are so much more positive under this model. It creates an environment of high engagement and friendly competition.
I recently came across a new app called Accumi. It is a task
https://www.accumi.com
1
I would advise against this.
A standard vesting schedule will be sufficient.
No need to nit-pick on which tasks are legitimate vs. illegitimate - I think this would create a very nasty and distracting dynamic within the company.
source: I've founded and also worked at multiple startups - a standard vesting schedule should suffice.
It is very possible and very wise to use a dynamic equity split model. In fact, it is unwise not to. The majority of companies that fail do so because of founder disagreements. Traditional equity models cause all sorts of disagreements because they are always wrong.
Traditional equity splits rely on the ability to predict the future. This is impossible and, therefore, the split will be wrong. Vesting does little to mitigate the issue.
A dynamic model, on the other hand, is based on what actually happens. It provides a concrete, definitive, unambiguous split that will always be fair.
To learn how to implement a dynamic model visit www.SlicingPie.com (http://slicingpie.com/learn-slicing-pie-model/)
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