How To Divide Ownership Equity Fairly When Forming a Startup. Do you need to speak to, find or hire the leading, most experienced, best, top rated startup founders stock agreement lawyer attorney for how to divide ownership equity fairly when forming a startup? Startup employment contracts attorney Andrew S. Bosin provides legal advice about properly splitting and dividing startup stock equity options to clients located in the United States, US, New Jersey, New York, New York City, Brooklyn, Albany, Syracuse, Buffalo, Connecticut, Boston, Massachusetts, Florida, Texas, Chicago, California, Dallas, Miami, Orlando, Jacksonville, Washington, DC, Philadelphia, Austin, Houston, Phoenix, Denver, Salt Lake City, Provo, Utah, Atlanta, Charlotte, Raleigh, Los Angeles, San Diego, San Francisco, Silicon Valley, Provo, San Antonio, Indianapolis, Columbus, Cleveland, Pittsburgh, St. Louis, Kansas City, Nashville, Ohio, Idaho, and Alaska?
Dividing up the equity among startup co-founders equally is an easy, quick solution, but it can also be a very big mistake causing a lot of complications with your ability raise money from VC’s.
Most startups are run by bright people with not a ton of experience having run a startup before. This is probably the first time they have had to cut back on expenses because not getting a paycheck anymore will cause you to stop ordering $6.00 coffee from Starbucks. Adding to this inexperience is the fact that most startups don’t have seasoned advisors giving them precious advice and knowledge about how to do things right from the start and position your company for an investment by VCs. And, for the first time the startup has to put together budgets, forecasts, executive summaries, bios, financial projects, blah blah blah. It’s not easy and at the same time you’re trying to build a product or get it out into the market place.
What is the central thing that ties all of this together? Hint, it makes the world go around. Without money and lots of it your startup is doomed to fail. So…listen up. From day one you and your co-founders have done nothing until you make money. If you remember this and nothing else it’s that you are going to burn through whatever monies you do have to keep your company going and without more of it your company will die. This slap in the face should bring you down to earth and understand that being humble and having no ego when dealing with VC’s will get you a lot farther than being a jerk.
So…I’m going to bring this full circle and make an even bigger point that when you are sitting around that table having that first discussion about how much equity each of you are going to get pretend there is a VC sitting with you shaking his head thinking what a bunch of idiots you are for giving yourselves so much equity so early in the game. I have no issue with the founders taking 51% of the outstanding stock that has been issued and leaving a sufficient amount for VC’s, advisors, board members and for a stock incentive plan. Don’t make the mistake of draining the company of all of its outstanding stock with the plan to be to issue more. That’s a bad move.
When a VC approaches your company they are going to want to look at the cap table to see how much stock is outstanding, how much has been issued and who else maybe has invested before them. You want to be in a position where a VC is interested because they are the first money in and no additional stock has to be issued. A VC might want and you should probably give them 20% to 25% of the outstanding stock, if, and only if: (i) they are shrewd, savvy investors in your industry; (ii) have a good track record of picking the right companies and making money; (iii) they can make introductions to other key companies that will help you grow; and (iv) they will take the lead on the next round.
Please call Andrew for a free startup legal consultation at 201-446-9643.
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One of the leading nationwide business and technology startup lawyers Andrew S. Bosin is located in New Jersey just outside of New York City and has a nationwide Technology Law Firm serving clients in New Jersey, New York, Buffalo, Queens, Manhattan, New York City, Westchester County, Islip, Oyster Bay, Rochester, Utica, New Rochelle, Tonawanda, White Plains, Binghamton, Saratoga Springs, Rockland County, Brooklyn, Long Island, Albany, Syracuse, Suffolk County, Nassau County, Bronx, Staten Island, Allentown, Scranton, Lancaster, Harrisburg, State College, College Station, Boston, Hartford, Providence, Connecticut, Atlanta, Chicago, Washington D.C., Dallas, Florida, Ohio, California, Austin, Texas, Maryland, North Carolina, Massachusetts, Colorado, Utah, Oregon, San Antonio, Austin, San Diego, Los Angeles, Silicon Valley, San Francisco, Houston, Salt Lake City, Toledo, Akron, Dayton, Provo, Portland, San Jose, Miami, Tampa, St. Petersburg, Ft. Lauderdale, West Palm Beach, Broward County, Dade County, Newark, Delaware, College Park, MD, Cook County, Phoenix, Denver, Boulder, Ft. Collins, Nashville, Memphis, Kansas City, Raleigh, Charlotte, Indianapolis, Boise, Eugene, Manchester, Burlington, Philadelphia, Pittsburgh, Pennsylvania, Vermont, Rhode Island, Boca Raton, Arlington, Virginia, Alexandria, Virginia, Reston, McLean, Cambridge, Quincy, Riverside, San Bernadino, Minneapolis, St. Louis, Cleveland, Columbus, Baltimore, Sacramento, Cincinnati, Orlando, Las Vegas, Round Rock, San Marcos, Louisville, Richmond, Tempe, Southbend, Bloomington, Knoxville, Oxford, Tuscon, Long Beach, Ames, Ft. Collins, Lawrence, Blacksburg, Charlottesville, Champaign, Oklahoma City, Birmingham, Salt Lake City, Baltimore, Mobile, Alabama, Utah, Washington, Seattle, Oregon, Portland, Eugene, Sacramento, Pittsburgh, Wake County, King County, Redmond, Kirkland, Bellevue, San Mateo County, Contra Costa County, Cupertino, Los Gatos, Sunnyvale, Mecklenburg County, Jacksonville, Gainesville, Boynton Beach, Orange County, Palo Alto, Harris County, Waco, Columbia, Missouri, Tarrant County, Bucks County, Lehigh County, Bethlehem, Pennsylvania, Burlington, Portland, Maine, Manchester, Concord, Nashua, Cambridge, London, Paris, UK, England, Dublin, Scotland, Edinborough, Amsterdam, Germany, Munich, Berlin, Madrid, EU, European Union, Spain, Austria, Vienna, Geneva.