Ask YC: Equity question for very early stage startup

A) I'd recommend that you reallocate your shares sooner rather than later so that you actually have a pool of unallocated stock to distribute to other new employees.

B) I think that you have to sit together as a team of 3 and determine what you think this persons value contribution will be. You are on the right track with a base+bonus thought. Remember also that you can arrange for the shares to vest over a period of time. This helps minimize the threat that you give someone more shares than they are worth - as the shares vest you gain better insight into the persons value contribution.

this white paper on Company Valuation and Founders Stock may help; http://nextstepgrowth.com/resources/

Thanks to everyone for some great responses. I think we can live with the number 3!

Vesting is something we've definitely thought about - I now just need to do a lot more reading/learning about vesting arrangements and unallocated stock. Anyone know any good resources on these?

We also definitely need a good startup lawyer! Any recommendations for people in London?

Thanks again

I second the vesting strategy. Make sure that whatever you set up aligns incentives with performance and the company's interests. Since this person is still working at another full time job, determine what level of commitment you expect that person to make to your venture (i.e. 10 or 20 hrs/week until a specific date or a funding stage); determine when will he have to commit full time to the business.

Consider how much each of you has contributed in initial capital and sweat equity to this point, where in your company's development you guys are at (concept only, prototype, beta version, etc) and how what he'll contribute is worth to you guys.

Since there isn't a clear market to easily price your venture, it'll probably come down to an agreement that feels right to you and you can live with.

Definitely talk to your lawyer.

Is this person going to be full or part time? If full time work out a salary + equity, if part time try to work out lesser equity only deal which will change once he comes on board full time (i.e. there should be some incentive for this person to come on board full time, if not figure out why not?).

Create and allocate a pool from which to hand out equity to employees, it's usually around 20% for future employees. Key employees vesting should typically be aligned with the founders.

How long have you guys been working on it? Have you taken a salary? Are you working on it part time/full time?

Also, speak to a good startup lawyer (yup, spend that money it will be well worth it) to structure this.

Good luck!

I recommend establishing a pool of unallocated common stock, against which you can issue vesting (4 year vest with a 1 year cliff, for instance) stock options. The gentlemen to whom you refer sounds like a good candidate for compensation via options.

Another question to ask is if he subject to a non-compete. If not, should you consider making him a Part-time employee?