Profitable existing business with Single owner - offering me Partnership & Equity to help it grow - My negotiation should be?
The owner has an online business which brings in a high $xx,xxx in profits (nearing 6 figures) with minimal costs (hosting, etc). Owner is looking to start fresh with an LLC setup and a partnership agreement specifically for this venture.
I will do the day to day business management, development, upgrades, etc -- Owner will be there to provide guidance and direction as needed, but will keep main focus on other separate ventures.
Initial offer was: ~$50k yearly salary,
20% potential equity stake,
4 years to vest (0% 1st year),
No profit sharing
My thoughts: I would also like to structure in some sort of profit sharing and goal setting for increased profit sharing that is fair to the partnership and provides me with incentive for increased performance.
I'm not required to bring anything financially to the table other than hard work and dedication.
Owner has asked me to come back with my own thoughts and my own idea for how to set it up - basically giving me an opportunity to negotiate the terms.
Community thoughts? (Thank you.)
Equity Negotiation Partnership
2 Answers
I have no experience with this at all, so take my thoughts with that disclaimer: Depending on the goal of the business, Equity could be far more valuable than profit sharing. If you are expecting an out (acquisition, IPO, etc.) then you may not have any profit (re-invest all the earnings back into the business to grow fast for a big exit). In that situation haggle for equity not profit.
If on the other hand no exit is in site, then equity isn't going to do you any benefit financially and you should really be pushing for profit sharing too.
It depends on the goal/plan for the business.
~$50k yearly salary
The business is solid already and you're getting a low equity stake. You will be doing all the development, infrastructure and support work, your salary should be around $100k.
20% potential equity stake
You're part of the first layer of employees of the company. check this. if you stay working alone for two years, you deserve the whole 20%.
4 years to vest (0% 1st year)
Four years, it's ok. but you should be getting a 25% of your shares in the end of the first year, plus 2% monthly.
No profit sharing
You're earning your participation, there is no reason to not take profits. you are acquiring equity. you deserve a participation of profits according to your equity.
tell us how everything goes once you've finished your negotiation, please
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Going with Joel's take on allocating shares etc, I don't think he'd fall under the first layer, seeing since this sounds like a proven company that is making money, not a new start-up that would be a risk (as far as job security is concerned) for employee's to join. – Anonymous 12 years ago
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He will be doing all the daily activities of the business while the founder steps out, he's the first layer of employees in my opinion, Anonymous. – Sd Reyes 12 years ago
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Thank you very much for the feedback and additional information I can use to negotiate - this is very much appreciated. I don't think that I can position for a $100k salary however as that is encroaching on the (current) profit stream of the business. First year will likely be an expensive one as I work to update some of the outdated functions of the business, etc. Profit sharing is confusing... ie; 10% profit sharing back to me initial? 15% w/ 2x company growth? 20% w/ 3x growth? How much percentage of profit for current owner? How much % always dedicated to go back into the company? – Elliott 12 years ago
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SDReyes - True... – Anonymous 12 years ago
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How much could you make working for another company and your current skillset? – Sd Reyes 12 years ago
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Closing the first year the owner will get it's 80% and you your 20% of profits, if you decide to leave sometime in the future you'll automatically lose the equity you have not vested. nonetheless, you will receive benefits equals to your whole equity yearly. – Sd Reyes 12 years ago
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Check the paragraph about common stock grants in the section "Ownership in startup companies" here: http://en.wikipedia.org/wiki/Vesting – Sd Reyes 12 years ago
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SDReyes - my skills would net a ~70-90k range for salaried positions. I understand if I decide to leave early I will lose my non-vested Equity position. What mean that "nonetheless, you will receive benefits equals to your whole equity yearly"? In regards to if I were to position for 20% of Profits (calculated monthly, quarterly, yearly?) I would at least be gaining that while waiting for vesting period? It would be beneficial (for the negotiation) I believe if I also proposed a date / milestone / etc that the salary is cut off and I'm paid entirely from my profit sharing percentage. Thoughts? – Elliott 12 years ago
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Yeah, you will gain profits for 20% even while waiting for your vesting period, ask for it. No, do not negotiate your salary, keep it. you win money as investor and as employee, those are two separate roles that should be remunerated to ensure the well being of the work relationship. add me on twitter @sdrgalvis – Sd Reyes 12 years ago
