They are willing to go salary free and on a 12 month contract and being very open to whatever I throw at them. Very cool guys and both seemingly committed, but of course I need to stay at the top (or close to the top) of their priority lists while also protecting my return.
There are several factors to consider:
1. Profit share does not have to equal equity. As an example, two people can agree to split net profits 50/50 even though the percentage of equity is split 60/40. Just get it in writing. So find out their expectations for long term income and equity. Are they expecting a share of net profits or just the ability to recoup their investment when you sell the business?
2. What value do they bring to your business? Are they funding? Are they bringing significant contacts or the ability to secure contracts? Are they helping with infrastructure or product development? What would you pay someone in salary with no equity to do the same exact thing?
3. Are the short term or long term? In other words, once they help you launch, do they continue to have value in building the company? Or, are they no longer needed?
There is no right answer to how you compensate them for helping you get started. But, try to look at all the value variables. Maybe that will help you identify what they are ultimately worth and what a fair, win-win offer would be. It sounds like they are very reasonable and you have a good opportunity to get their help for a reasonable compensation package.
Good luck.
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https://clarity.fm/kevinmccarthy/FreeConsult
In your question a few key terms stand out:
1. Partners - be careful with this one. You will only have a few close partners, and not knowing the nature of the business, usually you need strong technology, management, and marketing partners. The more you divide the company between numerous partners, the less each one gets. In the early stages this sounds great, just remember the awareness that business, and life, is never equal. In this first year, some people will become more important than others in terms of the business.
I've seen companies with 3 partners getting 25% each, and the remaining 25% used for angel investors, employees, rewarding key freelancers and outside help, etc. Given that at each phase of investment - if you are raising capital - there will be dilution, and this gets each partners share much smaller. Bottom line, in the long run this equality failed to motivate the company to growth, with 1 partner sharing less than the other 2.
Contributions are rarely equal, and should be measured and reviewed.
2. While everyone says they will handle what you throw at them, the way you throw it and manage this will make a huge difference. Even with a contract, they are not getting paid, and you refer to getting on top of their priorities.
The only way to do this is keep them busy and get this generating revenue, and/or investment. Stumbles will affect your team, as well your management style - for good or bad. These team dynamics need to be truly dynamic, not static, so be sure to not only clearly outline who gets what early, with expectations in terms of time, and if possible set some performance standards to gaining this ownership of the company.
For example, if someone is developing a mobile app and knows they can get one going in 6 months, then based on that they get XX%. If they don't, and I mean it's a disaster and it's not working, you have a review to make sure that the deal works for both of you.
That said, you want to keep as much of the company between a few founders at most in my opinion. This gives you decision making strength, and also reflects the ones who aren't there for a contract, they are there for the 2-5 year run to build this into a real business.
Often 25% is set aside for angel investors, early help and employees; use this amount to first measure who is giving what to the company, and anything outside of that should be reserved only for long term partners in the business. This should be earned with some simple benchmarks so everyone has a sense of progression, because startups can move through months of vagueness, and keeping people on top of things, and also communicating well, is huge for your success.
This can be done in a fun way. Remember giving anyone more than 10% gives them serious input in the direction of the business, it doesn't sound like much but it is. You need to get along with them, and be able to work with them, that's the key part.
Obviously not knowing the product or business, exact estimates are tricky, ping me if I can help with specifics, glad to share some insights.
Hi,
First off, it really matters what the idea/concept is on which you want your two teammates to work on. They can say they would go with whatever, but trust me when I tell you, the intrinsic motivation can very quickly disappear if the idea/concept doesnt resonate with them or they didnt buy into it.
I had just a case like this and it usually ends up in a failure, sooner or later.
So when you are talking to them about being part of the team and making them partners (share distribution should be proportional to planned or perceived contribution by each team member), make it very clean they need to buy into the idea or commit to it long-term (6-12 months).
Also to increase the chance of success form the beginning, make sure to get on your team few passionate team members who have complementary skills. Try to avoid have two or more team members with same or overlapping skills. This can create a competition and conflict of interest from the onset - and you dont want that to happen in your core team.
Also getting their commitment to work for free, as partners or core team members, will test their "faith" or how much they bought into the idea/concept. If they ask for money early on or are doing your project just as another 3 or more projects, that you should be treating them as freelancers or part-timers, rather then core team members or partners.
