Questions

I founded a company but have brought on an industrial designer and engineer on board as co-founders. They both bring unique skill sets and will put in the sweat equity, I am the CEO and will work in more the business intelligence side of things alongside PM duties. I have some hesitation giving them a large amount of ownership, as that would dilute my own. They deserve credit for their contribution, but to have my own shares dwindle into the 30-40's percentage of ownership gives me concern. Looking to vest month to month over a period of 2 or 3 years. Thoughts are welcome..

Hi,
You raise a good and common question.
In addition to agreeing with Jordan's analogy (that your co-founders add value, and therefore you are gaining more value rather than losing it), I'll discuss 2 aspects: (1) how the equity should be divided and (2) the implementation of this division.
1. How to negotiate the division of equity: a good tactic in negotiations (and this is a negotiation) is to try and first find out what the other side wants. You mention that you don't want to be left with 30-40% of ownership, but perhaps each of the other founder's was only expecting to get 20% (each) in any case, which leaves you with 60% (problem solved). So first try and understand how they value themselves (equity wise).
Second, and assuming that they do want a larger percentage of shares, consider creating 2 types of shares (either actual share types if this is permitted legally in your country, or based on the co-founders contract). Although it is sometimes simpler to have one type of share, this option may solve your problem - you will maintain control of the decision making, whilst they will have an equal split in the equity/profits. Just take into account that this needs to be very clear from the start, otherwise the other founders might eventually get frustrated with you making all the decisions.
2. Implementation of the division of shares: regardless of the amount of shares each founder gets, be sure to use a re-verse vesting system based on quarterly periods - meaning, each founder gets all the shares from day 1 (signing of founder's agreement), but the shares are subject to the reverse-vesting mechanism (meaning that they only officially become owned by that founder based after the full period - usually 3 years) has gone by. This mechanism prevents founders from leaving with all their shares after just a few months.
I've successfully helped over 300 entrepreneurs. I'd be happy to help you. Good luck


Answered 5 months ago

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