How much startup equity should be provided to an early, senior engineer?
pre-funding start-up in tech.
founder had idea and filed patent (pending); developed concept, small cash funding, etc.
engineer came in year later to help shape app; code proof of concept, help with product schema, etc.
now incorporating - what is equitable share & how to structure equity share (stock grant, options, both, etc.) for engineer?
both have full time jobs in other businesses.
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Current employment status doesn't mean anything for initial share distribution except for one thing: the current employer might own ***all*** intellectual property the person creates while employed. This means that the business will go bust as it won't have any value. – Dnbrv 13 years ago
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Hi Ann, welcome to the site. There are heaps of answers already on the site about this subject. Do a search for 'equity' and you will find them. – Susan Jones 13 years ago
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@dnbrv: In practice, the employer IP ownership is typically not enforced if it's not the type of product the company wants to be involved in. Having said that, if it had a significant impact on the employee's performance there may well be grounds for legal action. – Steve Taylor 13 years ago
1 Answer
Did the engineer just do the work and trusted that you could come to an agreement later? If not, that means you promised something and you have to stick with it.
Otherwise, you should come up with a number of options you can present to the engineer such as:
- Compensation for the work at market rates if/when it amounts to anything;
- Compensation for the work at market rates now (if you have the money);
- A big chunk of the equity.
Your idea, no matter how brilliant, wasn't worth anything until the engineer implemented it. Even now, your patent isn't worth anything if you can't afford to enforce it. Your engineer may well run off and make a business out of his hard work. So you could either do the right thing by the engineer and enter into a proper partnership or, if that doesn't suit him, ensure he is eventually compensated at market rates. Until either of these happens, your engineer may well have you by the balls.
