How much should the cofounder equity be – Split the pie

How much should the cofounder equity be – Split the pie

Cofounder Equity – Learn to split the Pie

When you come up with a profitable and marketable idea, it’s high time for you as a founder to realise that ‘Two heads are better than One’. At this point of time, you search for a co-founder. If you are lucky enough to find someone of your preferred mentality, things are going to be challenging.

One of the most important Challenge is splitting the equity among the founders. This is a crucial step in your startup, and believe me, this discussion room has shut down much more startup firms than you can imagine. The discussion room must be filled with a verbal, mental and emotional conscience.

Assuming you are the founder, with a mind-blowing marketable idea. Your co-founder is going to take care of the technical aspects of developing the software you need. According to your co-founder, he’s taking up a high-end task of developing the whole software, you would need to run the business. He’s the one going to burn the midnight oil to make your business run at the initial stages. At the same time, just because you came up with a profitable idea, doesn’t mean you have a grant for 90% equity. So here comes the splitting of the pie.

Cofounder Equity : What should you think about 50/50 equity split?

A 50-50 equity split might be one of the worst decision you may take as a founder. A 50-50 equity split just signifies your low confidence level as a founder of a firm. Always remember, a technical co-founder might burn the midnight oil to prepare the software in the initial months, and you as a founder would be waiting simply for the software to get ready. So, the activities of a co-founder get bestowed as a higher one at that instant. In fact, coming down to reality, after months of preparation of the technical part, the founder’s task of marketing, user acquisition and other non-tech aspects takes a huge effort. Also, you always have the option to hire some other technical guy to complete your software.

So now, think a fast-forward of 2 years from the present. Is a 50-50 equity split reasonable?
Well, definitely not. The biggest deal now is to make the co-founder understand this with all mental, emotional and verbal conscience.

Also, it’s worth noting that your firm is expected to run for several upcoming years. Will the co-founder stay in your firm for such long time? You cannot allow a co-founder to quit the company and also carry a huge share in the firm. That’s where the vesting of equity comes into the role. The discussion of splitting the pie goes incomplete without mentioning the vesting period.

What to consider while splitting the equity ?

I would recommend you to go via a logical framework that would eventually evaluate the co-founder’s or any employee’s contribution to the success of the firm. The logical value of Input, Risk that was taken and dynamic changes in input with time should be considered in the allocation of equity.

Also, now we need another logical framework to recover the equity when a co-founder or employee leaves the company. A good framework will look into the contribution of a person as well as the nature of separation. If the contributor separates due to his/her own fault (may be failing to work for the firm) or if the firm decides to layoff some of its employees (may be due to some restraint) – At these situations, the framework should support and benefit both the company and the contributor.

Characteristics for splitting the cofounder equity:

1. The First time experience of working in a startup environment before.
2. The Achievement of the previous startup the co-founder had worked in regards to his/her contribution alone.
3. Activity of the person with regards to the firm (CTO / COO/ CMO/ other)
4. Willingness to work full time only when the firm gets funded
5. All Monetary contribution to the firm till current time.
6. An Estimate of rate per hour that can be expected for the contribution of the co-founder to the firm
7. Number of hours the co-founder spent working on this project (e.g. average number of hours worked per week x number of weeks worked)

Splitting the cofounder equity – Bottom Line

Based on the evaluation above, splitting of equity can be evaluated. Also, a co-founder equity of maximum 40% can be suggested, but remember, it’s always subject to evaluation. If you believe he could be the only person in the whole world who you crave to do this activity, you can go with 50% equity sharing.

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Should you consider equity share over salary in a startup?

Should you consider equity share over salary in a startup?

Equity share :

If you are on the verge of joining a startup, ‘equity compensation’ would be the single most incentive a firm would attract you towards. Startups are known for their bankrupt bank accounts and their needs to develop the product with the existing cash. This renders the employees an incomplete or a cut-down salary or in a more raw stage null salary incentive.

Since your salary cash is going to be less than the market rates, the startup firms assure you a little stake in the situation. Equity compensation helps the firm save some cash and improve the product and operations. Now, hands down to those who are weighing an equity – Keep in mind equity has it’s own risk and benefits.

Risk and Benefits of Equity share over salary:

1. Equity share is not hot-cash but a steady walk to money:

The main risk of equity compensation is that you are not guaranteed to benefit from the stakes. There are a lot of factors that affects the stock price and in-turn your equity benefit values. Firstly, your startup has to succeed and remain in operations. In case your startup shuts down, despite your efforts, your stake value flows down to zero. Contrarily, assuming your startup succeeds and acquires enough consumers, there is a high chance for your stock price to riseup.

Let us look at an example,

When amazon entered IPO initially, it’s stock rate was $15 on an average which is same as the stock owned via equity by employees. Coming down to 2016, each stock of amazon worth $713. That’s a huge increment and thus, the employees who had worked for amazon intially with equity compensation would be able to gain a lot. That is how equity compensation works and benefits you.

Also Read: Amazon Founder and CEO Jeff Bezos gets richer by $2 billion in an instant after stock price surge

2. Varying Equity share Structure and Tax hurdles:

You can be compensated with equity either in form of ‘Incentive Stock Option’ (ISO) or in the form of ‘Restricted Stock Units’ (RSU). Each form of equity compensation packages a different tax consequence. It’s always good to listen from the firm about the type of compensation offered.

Jumping onto explaining the tax hurdles, let me tell you, equity defines your net worth. You will be stuffed with the tax burden even though your stock value falls. Thus, it’s real important to know when to cash-out your equity for cash and when to save it in form of equity itself.

Final Statement:

Equity share payments allow startup to manage financial struggles, when the firm could not afford to pay its employees. While Equity compensation lures the eyes in the form of huge cash tomorrow, it is badly subject to higher risk factors. Equity Compensation is a very strong platform for startup firms to keep their employees motivated with less payouts.

How can you build your perfect startup team ?

How can you build your perfect startup team ?

Taken Mind help!

Making your perfect startup Team: Made Easy!

Being the founder of a startup is exciting and equally settles you with great responsibilities. I can call a startup without a proper team to be a dead startup. Most startups fail to make a revenue or shuts down because of improper team contribution. Firstly, forming a perfect startup team with great effort can potentially accelerate your growth.

The 3 Pillars of founders needed for a perfect startup team:

1. Someone who knows well to play with the code and can effectively build web and app products

2. Someone who understands the complete product, the problems in the world that can be solved by your future product.

3. Someone who can effectively communicate, sell your product to the people who needs it.

If you believe, you can handle all the 3 characters by yourself, read the 3 pillar points again and again. Finding the right person is highly difficult and every successful startup would have faced the same issues you are facing.

Finding your Dream Team

Give your grad school mates a second thought

One possible and effective way to form your perfect team is from your grad schools. It may be your friend or classmate or a senior whom you believe can make things work. Don’t restrict yourself from calling them up. Make sure you speak clear of your ideas in mind. Grad school mates joining the team can effectively create better team strength, trust, and personal ties.

Try your Linkedin Tools to find the right person

If you are not happy with your grad school mates, you can always search people on LinkedIn.
Linkedin offers a premium tool to find people who can fit in your criteria with filters. Try sending your preferred ones a connect request and message them. Form your team and keep them connected remotely. Also, make sure you have a long connection list on Linkedin. Make a status update of your team member need and stay tuned!

List your startup in Angel.co

A perfect team member can always knock your door before you find him. Angel.co helps people trying to fit in a startup pick one. Listing your startup on Angel.co makes your startup visible to the correct eyes. Angel.co also helps you in searching for investments.

Whatever method you adopt to bring in team members, always make sure you are surrounded by best of the people you can afford. Start looking for common sense rather than a completed degree.Keep your team members active, be it chit-chat or a serious product discussion, be active and responsive towards your team.Your team solely decides the venture of your startup in the barren world.

A word of Caution: Always keep in mind, that your founding team can never be changed. Making your initial steps with precautions can fill your rest of the days with a great adventure unseen to common eyes.

Starting Business – Why should you consider ?

Starting Business – Why should you consider ?

To all Taken Minds,

If you are an aspiring Entrepreneur, you might have 1000s of people, your family, friends, well-wishers and even your significant other, also standing up against your idea of starting business.

What makes you step into starting business?

Here, I had listed the top reasons that will make you think in the right direction and stick to your decision.

  1. You have an idea that can fill a void in life of a few people to a million.
  2. Starting a Business can make a change in a million people’s life. You get your satisfaction as a contributing personnel to the society. Because of your efforts, your sleepless nights and your hard work, you get to see a change in the system around you.

    Be it starting a small restaurant or making a billion dollar firm like Uber Technologies, you will get the satisfaction of serving good for the community.

  3. You work for yourself and set your own work time
  4. When you start your business, you are the boss of your own. You allot your own work time and sail your startup boat across all the hurdles. You experience the sleepless nights, your heart throbbing to finish the work out of a passion rather than fear.

  5. You start making good money and work on your passion
  6. While you work consistently on your idea and put your product on the market, you start making really good money. In Business, there’s no limit to the money you make in contrast to working as an employee.

  7. You get Job Security and also Overcome a Layoff
  8. No one has the authority to fire you. You are in charge of overall work and you have the authority to hire or fire others.

  9. You try to outperform your real Competitors
  10. Remember the kid in high school who competes with you for a higher grade? Well, Starting a business will light you up on what a real competition is. You will feel the adventure of improving your product and you will always remember

    There is someone who is working 24 hours a day, just to take it all away from you

    Surving the odds is the real face of an Entrepreneur.

Airbnb history – Inspiring rise of a billion dollar company

Airbnb history – Inspiring rise of a billion dollar company

Taken Mind Stories – Airbnb history!

Airbnb [Air Bed and Breakfast]:

Airbnb, an international company was started up by Joe Gebbia and Brian Chesky in 2007. Airbnb works on the monetization of personal property and concept of shared economy.
www.airbnb.com serves as a one-stop destination for people to find rent and lodging. As of 2015, 1.5 million properties had been listed at Airbnb. Airbnb had turned to be the world biggest Estate Rental service ever known.
AirBnB

Airbnb History :

The emergence of Business Model:

It all started in 2007.

Joe and Brian of Airbnb
27-year-old Joe Gebbia and Brian Chesky who had met 5 years earlier at ‘Rhode Island School of Design’ were struggling hard to pay their house rent at San Francisco. By that time, there was a design conference going to be held at San Francisco. All rooms in the hotels of San-Francisco got booked. The duo struggling to pay their house rent found a temporary solution to make up for rental money.
Joe and Brian came up with the idea of renting up their home. They had a minimal hope that someone would turn up. The next day they created a website, www.airbedandbreakfast.com. Within 6 days, the duo got their first order. 3 people – a 30-year-old Indian man, 35-year-old Boston woman and 45-year-old from Utah showed up for $80 each.
The duo rented out 3 airbeds on their living-room floor and also cooked breakfast for the guest. Soon after the nights, as the guest left, Chesky predicted that there’s gonna be a bigger scale idea. Sitting at the edge of the sofa, the “dream plan” of Airbnb was framed.

Chesky and Joe planned to get their hands wet on the idea and started a deep discussion. Chesky always had the idea of Entrepreneurship. They came up with the idea of creating a website that helps in renting stuff that already existed. The idea was perfect. They primarily targeted conference and festivals across America. Local People were given an option to list their rooms and the travellers had the option to book them. Very few bookings showed up, upsetting Airbnb.

Entry of Nathan Blecharczyk and the arrival of Co-founder: Airbnb history

Nathan Blecharczyk - Co-founder Airbnb
Nathan Blecharczyk, then 29, was the former flat mate of Joe and a Computer Science graduate. A new version of Airbnb website came into existence with the entry of Nathan. Nathan was given the co-founder profile for his active web development. In summer 2008, a perfect kick-start for the company development was expected by the trio. It was the Democratic National Convection and a whooping 1 million people were expected to be present. The trio completed their webpage 2 weeks in advance to the conference. Within a week around 1000 listings were made on the website by the users, yet the website couldn’t make money as Airbnb didn’t charge its users. This created a huge upset for the team.

The seed funding initiative: Airbnb history

Taking Advantage of the election fever, the team brought in a ton of cereal and Branded them as ‘Obama’s O’ and ‘Cap’nMcCain’. They sold 800 boxes at $40 each. Thus, the trio made their seed funding themselves at a profit of $30 per box sold.
Obama Cereal Airbnb

Series of Investor cash flow:

In 2009, Airbnb crew raised a seed funding of $20,000 from an angel investor- Paul Graham. This was followed up by a Venture Capitalist funding of $600,000.
After the series of investment, the crew felt the need to charge the users for every booking. They thought a decrease in customer base can be easily compromised by the funds generated to brand Airbnb. They started charging up to 15% on every booking.
In 2010, Airbnb raised $7.2 million from VC followed by $120 million in July 2011.
The funding gave them the power to hire more people to work. Airbnb moved into their new office Apartment in Hongkong.
Airbnb HQ
Finally, Airbnb was established In the full fledged form where more than one million bookings take place annually. In the past year, the site grew up by 400% by their clever marketing skills.
Despite a huge evolution of idea, Chesky and Joe still rent the same flat they started in. Airbnb had employed more than 200 employees.

Thus, Airbnb gave a boost to the concept of Shared economy!