Equity conversation

Based on the thinking set out below, the  suggestion is that, very early on, detailed , thorough but relaxed conversations are had between the founders of a project, an agreement reached, written up, signed and then effectively forgotten – time to get on with the real work.

1 – 50% (or 60% or 40%) of no market value (the initial condition) is nothing.

2 – Most ideas come to nothing.

3 – If an idea is of the ‘make a decent living’ type, then percentages matter more than if it is of the ‘infinitely scalable’ type. One percent of a billion is lots!

4 – People’s attitudes to startups are likely to change over time. In particular, if something begins to look as if it will be a big success, then relative percentages will begin to seem significant – the problem being that it’s then too late to have a relaxed conversation about money. Stress in such conversations at a cusp in the development of the business is dangerous, both for the business and for the individuals involved.
THEREFORE: have early, detailed conversations about the agreement – consider some likely scenarios, make sure all involved are happy with the implications of the agreement in those scenarios. Given 1 & 2 above, this conversation should be relaxed.
THEN: Write the agreement down, sign it, put it away in a safe place and get on with the important stuff. If you make a go of that, then perhaps it might be worth getting the document out again, one day. If the project doesn’t work out, at least you haven’t spent any more of your life than absolutely necessary discussing imaginary money.

This post sets out a more sophisticated, incremental approach to addressing equity distribution.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s