If I have a startup LLC and an early investor would like to invest for a 10% equity in my business, does he also need to be a legal business partner?

Hello, So usually; at least in my opinion, the best search for funding follows validation from the market, a certain amount of recurring revenue and proof that business works (and can scale). Do you have these?

In my experience, every step you take to complicate your company's structure and ownership rights reduces the likelihood of investors providing your venture with seed funding. To attract seed funding, investors expect a single-minded laser focus on the entrepreneurs' assessment of his or her best path to validating their business and growing it into a very large business as quickly as possible. So the very idea that you are reliant or considering taking multiple paths to success is likely to act as a red flag for most experienced early-stage tech investors. Also, until there is significant traction achieved, an investor is expecting to own everything generated by the business. There are rare occasions where a particular asset, brand, domain or other component of the business can be spun-out (usually in the case where it's a distraction from the core business but there's inbound demand from a buyer), but when I say rare, I mean this happens so infrequently that it's not anything that should be reasonably expected in the course of planning. Speaking candidly, this entire strategy creates a perception (accurate or unfair) that you are undecided on a number of the key questions you need to be sure of before you have a good chance of raising seed funding. I'd be happy to talk to you about what you're doing and help provide some clarity based on what I hear. I encourage you to review my references as I have been helpful to many other Clarity members on these types of issues.

Hello! This is a very good question, my name is Humberto Valle, and I'm the founder of www.Unthink.me a small globally known inbound marketing agency. We have helped many tech-related companies such as Software Developers who work on equity as well as traditional payments. For our marketing agency, we have also taken equity in combination of 'cash' payment. So yes, there are many opportunities for startups to hire or partner with an individual or agency on equity. The trick, I would assume is where in your lifecycle do you approach someone to work with you/for you for equity promise? At the end of the day, marketing agencies are not a hail mary approach to growing or making a company sustainable - its all about management and strategic market fits - if your plan is to hire an agency to have them do what you want, you may not find anyone who would be interested, possibly not even for payment. It is very understandable that you want to save your burn rate but you have to be respectful of someone's skillset - for example you mentioned doing 75% equity and the rest based on results - so commission? A good established marketing agency is not in the business of a startup, so unless they have a CEO who gets distracted, any good leader will not take on 'external opportunities' from what they are doing right now - aka a marketing agency won't work on hopes and dreams - which is what this is right now. As a business owner, startup entrepreneur and leder of your team you have to make critical decisions and hiring and spending on marketing is one of them. For example, I would consider myself to be globally recognized ( not a lot but decently enough) on topics that revolve around marketing strategies - my suggestion to you would be to look into marketing agencies and hire them directly while you are also focusing your expertise (is it manufacturing? logistics? sales? what is it? focus on that and outsource/partner the rest such as for example you could look for an existing expert in cosmetic distribution or connections at some of the larger retailers, give them that structure (% equity + commission %) butkeep that that equity to a minimum (don't offer, ask for them to value their own worth and negotiate from there)

First, congratulations on your recent funding/recruitment successes! This is an excellent question, and a transaction I have been directly or indirectly involved with numerous times before. Each circumstance can be unique, the two most important considerations to look at as a starting point would be 1) what is the current status of the technical product and 2) what is the current funding or capitalization status of the organization. Generally speaking though, the type of range you could be considering here could be in the mid to high single digits all the way to a nearly equal share in the venture as what you (the original founder) have. My gut reaction, based on your brief description, if that you are looking somewhere on the higher side of the range here (given the candidate, venture status and other data points you offered.) Getting to a firm and real number though will require some more analysis. So our challenge now, in order to answer this correctly, is to dive deeper into a few other details we need to uncover. To name a few: - Are they participating in an initial capital outlay/investment? - Are there any expenses of them joining the venture (moving etc) that they will incur? Who absorbs those costs? - How much familiarity do you have with this person prior to joining your venture? Have you worked with them directly? Have you spoken to anyone who has? - How critical is the tech stack they are supporting to your overall ecosystem now? - Is this CTO going to spearhead and participate in day-to-day development, or just own the roadmap/vision? o Are they a full stack developer? - What is the near and long-term vision for participation from your other employees? Are they going to be moving to FT status at any point in the near future? - What participation, if any, will this person have in the fundraising or sales process? - Beyond the current $40k investment and upcoming cash flow, what other capital inflow and outflow are expecting in the next 12 months? - What are your alternatives if this candidate didn’t work out for delivering the application? Would you pause this priority altogether or need to aggressively explore a new option in order to meet client demand etc? Once you establish these and other pieces of data, you can start looking at comparable plans out there and piece together what your starting/ending point is as far as comp terms you’d like to offer. It’s as important to remember that in addition to extending a number here, these are in fact negotiations and it is in your best interest to know what your strategy is with this candidate so you know how aggressive or passive to be in terms of making adjustments along the way after your initial offer. I would also highly encourage you to research alternative solutions and even engage other candidates right now in the process so that you can have a better sense of what is available in the market to you and also have an advantaged negotiating position since you’ll know to what extent this person isn’t the only game in town to consider. As I said before, there are several details which may dictate or alter precisely how you approach the offer and negotiation process with this new hire. I'd be happy to hop on a quick call to discuss further so we can dive into detail on 1) how important this particular candidate is to your overall scope so that we may 2) identify the appropriate starting point and end point for negotiation purposes and 3) consider alternatives to this plan as your backup plan in case the conversations with the candidate do not go as anticipated (or inversely, so you can have a clearer understanding of how advantaged or disadvantaged of a negotiating posture you need to take.) Reach out and request an appointment so we can connect and discuss further.

I think if you're going to pursue a studio approach, you should assume that you will not be able to raise much in the way of outside equity funding. Most investors do not want to invest in a team that is pursuing multiple projects at the same time for a variety of reasons. To the extent that any of your apps have demonstrated any kind of initial traction, there is a reasonable chance that you can recruit competent growth professionals who could be compelled to take a big portion of upside, but I'd caution that true experts (as defined by people who have done it more than once at 100,000 plus users) would rather do this for their own app or be a cofounder in the overall venture so be careful about professionals who present themselves as experts who are all too willing to venture for a largely performance-driven deal. With regards to proof points for funding, assuming you want to abandon all others in favor of the one that gets the most traction, I've written several related answers here on Clarity about the benchmarks for angel and seed funding so I encourage you to review my profile and look at previous answers. If you'd like to talk by phone, I'm happy to help.