Dividing Up the Partnership of New Company Between Founders
So I'm starting a New Company that offers internet marketing services to businesses. There are two other founders besides myself, these are people that I am bringing on to help grow the business. They both bring something different to the table but equally necessary. I'm unsure what is a fair way to break things up.
Partner A) is myself. It was my idea, I've been working on it for several months now. I've already put countless hours in to date. I will likely be the person who does a little bit of everything from sales, to client relations, management, and getting the work done for the clients. I'm not greedy or concerned with making sure that I make the most, although I've been told by friends and family that I should. Also that I should always retain controlling ownership.
Partner B) is a good friend of mine who has a couple of his own business ventures already with his dad. He is the first person I brought the idea to and agreed to get on board. He is set to handle a lot of the back end stuff, finances, taxes, paying employees, invoicing clients and so forth. He is not experienced in the actual internet marketing services that we are going to offer but will likely learn and become more involved as we go.
Partner C) is a person that I have been working with off and on in other joint ventures over the last year or so. He brings basically what I bring to the table in knowledge, experience and work ethic. He will help with a lot of the actual work that is done for the clients, hiring and managing the outsource team etc. Also will be bringing in clients early on.
The overall plan for the company is to hire and manage a sales team to bring in clients and an outsource team to complete the work. Partner A (me) and C are full time as of now pretty much. Partner B still has some other business ventures that take up a good portion of his time although he has a flexible schedule and still puts in a lot of time. As the company grows we will all likely work an equal amount within a short few months. Also It should be noted that there is very little overhead and therefore no real investment will be needed from outside sources. We will all likely split any small start up costs evenly.
The one problem is that Myself and partner B were looking at doing this ourselves, although I made the decision that we needed partner C. Partner B does not want to give up a large portion of ownership because the company is likely to get pretty big and that would be a substantial amount of money. Partner C wants ownership and feels that he will be putting a lot of work in, which I agree with. I also feel that partner C will help the company grow larger and faster therefor leading to more money anyway. I'm ok with a fair three way split since even though it was my idea just to make things fair and even.
What do you guys think I should do?
4 Answers
I built a spreadsheet to help "cut the founders pie" http://www.hazelconsulting.com/blog/startup-equity-division-how-cut-founders-pie based on the article here:
http://www.andrew.cmu.edu/user/fd0n/35%20Founders%27%20Pie%20Calculator.htm
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Thanks David, that was very helpful. – Neil 13 years ago
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I can't seem to get the referenced article link to work. Someone help me out? Thanks! – Joseph Barisonzi 13 years ago
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I fixed the link. It had a single quote character in it that was given the interface some problems. – Kenneth Vogt 13 years ago
Split up the equity or shares of the company based on the amount of time each of you are going to devote from this point forward. If equal time is being put in, equal shares should be alloted. My concern is on partner B. It seems that he has alot of things going on. Find out where his priorities lie and how all of you see your involvement in the company when the company takes off. Maybe one of you just want to advise, (form a board) and give them 5%, and not run the day to day operations... But I would use time as a determinate of equity.
You plan to have 3 principals - but then also to hire other salespeople and then outsource the real work. Why do you need these other two people? You should consider that this sounds like too many "Chiefs" and not enough "Indians."
To address your specific issue: "several months now" hardly means anything in terms of time.
You need to talk with you "cofounders" - not with us or your friends and family.
EDIT
You already stated you would split the ownership evenly. Given that then why not do it that way? You should read all the other related questions and answers about firm agreements, vesting over time, exit strategies for partners, etc.
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How does any of what you said address my "specific issue"? Whether or not I need 3 principles or have too many chiefs and not enough Indians wasn't remotely what I was asking. I know why I need those people and how many Chiefs and Indians I'm going to need. What I was asking was how to divide up the ownership as that is something I'm not very familiar with. Of course I need to talk to my "co-founders". I was just looking for some advice/perspective before I do that, since ultimately how it works out is my decision. – Neil 13 years ago
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In my ~100 days on AOS, I have rarely seen you giving any meaningful answers. Most of your answers/comments are either disparaging or shooting down others questions. You may want to be a little more accommodative of others and welcoming to new members. (Another example [here](http://www.brightjourney.com/q/new-vc-world-looking-direction) – Ankur Jain 13 years ago
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@Ankur - regarding the other post - I think my information was dead-on. VCs don't invest in mortgage companies. Period. As for this answer - how do you find it disparaging? I gave honest feedback of what I thought of the business. he may not want to hear it, but it is better to get honest feedback than a bunch of stuff that has no real use. He can spit the company any way he wants. All of our jabbering about what is fair or right is not useful - his venture is barely nascent and he already stated he is happy with 1/3. There's not much else to say other than "talk to your partners". – Tim J 13 years ago
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@Ankur - You seem to think that my comments like this one http://answers.onstartups.com/questions/22593 offer no value - in fact, addressing the bigger issue rather than small, specific ones is far better. Sometimes one has to answer bigger questions before getting into details. – Tim J 13 years ago
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I was also disparaging in this question: http://answers.onstartups.com/questions/23618 - but I felt it was worth the risk of looking like I was shooting it down. If you really feel like I am demeaning or not helpful then flag my comments or answers. i certainly have better things to do than try to help people and contribute and get slapped for it. – Tim J 13 years ago
My concern is on partner B as well. Sounds like they are bringing a very generic skill set to the table that you cant necessarily make money from. Where as it sounds like partner C will bring revenue to the company. May be "cheaper" to just employ an administrator than bring partner B on-board at the cost of equity.
I personally feel partner C should have higher equity than partner B.
Ballpark, something like.....
Partner A (you): 51%
Partner B: 20%
Partner C: 29%
