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I'm James Wallman — author, entrepreneur, futurist. Welcome to The Future Is Here. We provide sensible, robust, useful strategic advice to people like you.

Notes from a startup: How to work out equity

So I've been working on my startup, GroupHug… and I'm working out how to share equity. 

It's a new one on me, but then, so is this startup business.

  • At first, I found this equity calculator at Foundrs.com very useful. And it is, for a start. 
  • But then, it doesn't cover all the people involved, it doesn't cover setting aside shares for employees, it doesn't reference different levels of risk — ie if you're in it from the beginning before anything is proved, there's more risk…
  • So to solve this I started looking again (when I really should be working on the "customer feasibility study" that John Mullins recommends and describes in The New Business Road Test), and I found these very useful pages: 
  • This is on the "Buffer equation" where they work out who gets what based on 4 factors which they've turned into a formula: ROLE x CHOICE / RISK LAYER + SENIORITY
  • And this one, which is the Buffer page where the founder explains how it works.
  • Love this: on how difficult founders are, and that the hard work is all ahead of you: 
  • http://www.danshapiro.com/blog/2011/04/startup-cofounder-equity-split/
  • LOADS of advice on this Quora thread here.
  • And then, if the amount of sweat equity — ie time — different people put in is changing and you want a rolling version of equity split, there's Slicing Pie
  • I also talked with a number of startup guys, in particular Matthew Celuszak, founder of a startup called Crowd Emotion, and Paul Joyce, founder of a startup called Geckoboard.

Your situation is unique

No 2 start ups are the same. Your founders, risk profile etc are always going to be unique. So you always have to make your own version… 

Here's my calculation of equity, before we raise any funds. At that point, we'll presumably split what's remaining according to this way of sharing.

Based on: 

  • idea origination
  • idea development
  • at what "risk stage" joined up
  • importance to business (will business fail without them? what impact would them leaving have on success of business?)
  • contribution, to date, & future

A little more:

  • JW conceived idea in July/August 2015.
  • JW launched idea in Oct 2015.
  • RW started advising on idea in Oct 2015.
  • JS joined discussions in Nov/Dec 2015. Agreed to work on GroupHug in Jan 2016. 
  • JW has worked on this avg 4 days per week since Oct 2015.
  • RW has advised, until March 2016. Since then, more active role.
  • JS occasional input until agreed to be part of team in January 2016. Slow start, got going in Feb/March. Since April 2016, 1 day per week.
  • KS input from March 2016: advice & practical input.

 

 

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