In a startup, there are just too many things at stake to be ignored and setting up a good vesting scheme is the last that you would like to ignore. Which bring us to the question, what do we mean by a vesting scheme for a startup. It simply is the method that helps you split equity among the startup co-founders, investors and certain employees if so needed in future. It saves you and your company from someone who may just get away with your share. It saves you from potential disputes and maybe, regrets in your life.   

Here is how you can set up a vesting scheme for your startup

Part 1

Founders’ Pie By Frank Demmler

Notice the elements in the table below.

Your next job is to establish the relative importance of the elements by weighing each on a scale of 0 to 10. A tech startup ‘idea’ is fair to be weighed  7 or 8 whereas an idea of a restaurant may be weighed only 2 or 3. Similarly, a business plan may weigh less if the founders themselves are putting in the money by themselves. Same goes for other matrices too. 

In the table below, you got to fill the columns as per the individual founder’s contribution to that field. One who brought the idea to the table can be given 9. One with great industry connections can be assigned a better on the scale than other for this matrix

Let’s take a hypothetical scenario and see how things turn out. Read the tables below and analyse.  

The relative importance of the elements

Relative contributions of the founders

Now, when you have a fair idea of the equity split, let’s learn about the second step which is vesting scheme. 

Part 2

If you are unsure about the risk-taking capabilities of your co-founders and fear that they might leave the relay in between, leaving you helpless, then you are not wrong to think like that. Setting up a vesting schedule is very important. You can not just your co-founder walk away with 20% of company share if he/she chooses to quit too soon.

Here is how a vesting schedule for a cofounder number 2 from the above table may look like. 

He/she has 44.2% of the company on paper, right? Unfortunately, that founder decides to leave the company or get fired within a year then as per your designed vesting terms he/she walk away with nothing. After the one year point, you get 25% of your stock and every month after that he/she gets an additional 1/48th of their total stock. This way they only earn all of their stock at the end of four years. Clean and clear, right?

Through the vesting scheme, you decide you can also understand what happens if an advisor, a board member or a co-founder is added later to the team.

Main Image: © Pop Psychology

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He believes, space technology could have already taken us to Mars and beyond if more and more people had worked towards it, collectively, and not just government agencies. While   building SpaceX, he proved a lot of people wrong, once who firmly believed that Space-tech is not for private ventures to explore.  

In India, ISRO is no doubt doing an excellent job. India is also among the very few countries that have planned to have its own space station by 2030. As per a report by Research and Markets – The Space Industry, was valued at US$ 360 billion in 2018, and this is projected to grow to value US$ 558 billion by 2026. Therefore, these are all good reasons to launch a startup in this domain and revolutionise space technology. 

Let’s take a look at some of the Indian space technology companies that are making the news.

Kawa Space Tech

The company designs and operates earth observation satellite constellations. It serves customers in financial services, government, strategic risk management and agriculture. Kawa Space is based out of Mumbai, Maharashtra, and was founded in 2019 by Kris Nair and Bala M. 

Highlights

The 16 member team has won the contract to build over 27 satellites for ISRO. 

It is backed by Paytm founder, Vijay Shekhar Sharma.

What does the co-founder Kris Nair say on the subject?

Nair says, “Space is a very large opportunity. We have 300+ companies in India focusing on this market, they have been operating their businesses and doing remarkable things for the last 30+ years. Most have been supporting critical missions of ISRO & other agencies for a very long time. We are also using a dozen of them for our missions”.

Dhruva Space Tech

Dhruva Space which is based out of Hyderabad, Telangana, was founded in 2012 by Sanjay Srikanth Nekkanti and Narayan Prasad. The company is working on to build and launch small satellites in the 10-100 kg range. Do you ask, why? Two reasons: It cost less and have a turnaround time of nearly 18 months. 

Highlights:

Dhruva Space seems positive in its endeavour of building and making private commercial satellite, a norm in India. The company is anticipating to build about 70 small satellites that can be launched as a constellation, for its potential customers.

What does the CSO, Abhishek Raju, has to say on the subject?

Abhishek Raju, chief strategy officer of the company, says “We are trying to prove our hypothesis that space need not be expensive, and a lot of frugal innovation is possible.”

Exseed Space 

Exseed Space was founded by Kris Nair and Asshar Farhan in 2017 and his headquartered at Mumbai, Maharashtra. They develop small satellite platforms with a major focus on assembly, integration, operation, and testing of satellites. 

Highlights

The company became the first private Indian company to put a satellite in space in December 2018.

There are Astrome, Bellatrix Aerospace and many more companies that are doing an incredible job in innovating space technology in India, that we shall discuss in further write-ups .

Main Image: ©Tumblr

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What other big brains have said so far on the subject?

-The billionaire CEO of SpaceX and Tesla, Elon Musk believes, “AI is more dangerous than North Korea.”
.
-Billionaire entrepreneur and investor Mark Cuban said, “I am telling you, the world’s first trillionaires are going to come from somebody who masters AI and all its derivatives and applies it in ways we never thought of.”

-Famous physicist Stephen Hawking said, “AI could be the worst event in the history of our civilization.”

Taking these remarks into consideration it could be concluded that today AI is one of the hottest matters of debate among the biggest business leaders, scientists and thinkers of our time. Where do you think they get this knowledge from? They are just human like us then how do they get so enlightened on a subject and make such profound statements? The answer is pretty simple. They make an effort to learn and dare to venture into a less explored territory. One of the key ingredients to that is ‘reading’. Most of them are avid readers. You can be too.

Here is a list of books people like Bill Gates, Elon Musk and Mark Cuban have read on Artificial Intelligence.

1. Nick Bostrom’s Superintelligence

                                                                      ©amazon.co.uk

The book has been written by Swedish philosopher Nick Bostrom and it argues that if machine brains surpass human brains in general intelligence, then this new superintelligence could replace humans as the dominant life-form on Earth.

Not just Bill Gates, even Elon Musk wants you to read this one if you want to better grasp AI.

Musk tweeted on Aug 3, 2014, “Worth reading Super intelligence by Bostrom. We need to be super careful with AI. Potentially more dangerous than nukes.”

2. Pedro Domingos’ The Master Algorithm

 ©amazon.in

The author writes, “If it exists, the Master Algorithm can derive all knowledge in the world—past, present, and future—from data. Inventing it would be one of the greatest advances in the history of science.”

This is the book both Bill Gates and Mark Cuban wants you to read.

Mark says, “It’s a very readable guide to how all the different forms of artificial intelligence work and how they can impact each of us and our environment now and long-term.”

3. Our Final Invention by James Barrat

                                                                            ©amazon.in

This book discusses the potential benefits and possible risks of human-level or super-human artificial intelligence. The author says, those supposed risks include extermination of the human race.

Elon tweeted on Aug 3, 2014, “While on the subject of AI risk, Our Final Invention by James Barrat is also worth reading.”

4. Life 3.0: Being Human in the Age of Artificial Intelligence by Max Tegmark

                                                                            ©amazon.in

This book by an MIT professor is more optimistic towards AI and stresses how we can keep AI beneficial to humankind.

Elon tweeted on Aug 29, 2014, “Worth reading Life 3.0 by @Tegmark. AI will be the best or worst thing ever for humanity, so let’s get it right.”

What’s your take on AI? Tell us more about the other books you have read on AI.

Main Image: ©9gag

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Quote 1: “Being an entrepreneur is like eating glass and staring into the abyss of death.”  – Elon Musk

Relevance: When students of Draper University visited Tesla factory, they asked Elon, “As an established entrepreneur, what is the number one tip you have for all the young entrepreneurs waiting to startup?”

He said, “I think it’s very difficult to start companies, it’s quite painful. A friend of mine has a good phrase for doing a startup: it’s like eating glass and staring into the abyss. If you are wired to do it, then only do it, not otherwise. So think of it this way – if you need inspiring words, DON’T DO IT!”

Quote 2: “It’s OK to have your eggs in one basket as long as you control what happens to that basket.” ― Elon Musk

Relevance: I hope you remember Elon’s Zip2 Corporation, PayPal, SpaceX, Tesla Motors, SolarCity, The Boring Company, and Neuralink. Many a time he was close to bankruptcy in some of these ventures and failed in delivering on deadlines he anticipated but today most of them are flourishing. He chose where to invest his time and money very wisely and controlled the process. That is detailed work and a sign of huge dedication, intelligence and wise decision-maker.   

It doesn’t matter if you put all your eggs in one basket or many, it is you, and how much you know yourself that matters.

Quote 3: “Don’t delude yourself into thinking something’s working when it’s not, or you’re gonna get fixated on a bad solution.” — Elon Musk

Relevance: Suppose you are preparing for an exam. Let’s suppose it is, CFA. Now if you think you can crack it within a month’s preparation when you actually know you need much more time then that, it simply is bad planning. You are living in a delusion. You need to get out of it and set practical goals that you can achieve in a certain period of time. 

Is Elon saying he can go to Mars in a month? No. Set practical goals.  

Quote 4: “It is possible for ordinary people to choose to be extraordinary.” ― Elon Musk

Relevance: Most of the Potterheads are aware of J. K. Rowling’s rags to riches story. Not many people had heard of her name until the day First Harry Potter novel was published. She once said that at one point of time when she felt like a failure, it was then when she felt liberated, that’s when she started working on Harry Potter and rest is history. She chose to be extraordinary and she did it.  

Quote 5: “When something is important enough, you do it even if the odds are not in your favour.” ― Elon Musk

Relevance: How many successful private ventures you can recall in the space industry? It’s hard to recall any except SpaceX which has done a tremendous job. It is a complex field to bet upon. He did it despite all odds because he cared. He believes it is important to make human beings a multi-planetary species.   

Quote 6: “You shouldn’t do things differently just because they’re different. They need to be better.” — Elon Musk

Relevance: Most of the first time entrepreneurs are deluded into creating something different. It is common sense if something is not better then the current solution, how much does it matter to be different?  

Quote 7: “There’s a tremendous bias against taking risks. Everyone is trying to optimize their ass-covering.” – Elon Musk

Relevance: This simply can be related to the career choices we make in life. You could have enjoyed your life much more being a physicist but you chose to be a software engineering as a stable option. That is just one example. You could be anything you wished to be but then why did you settle for something less. Take a chance, it’s never too late.

Quote 8: “Some people don’t like change, but you need to embrace change if the alternative is disaster.” –  Elon Musk

Relevance: Many of us who are keen to follow Elon Musk’s life events aware of how Elon was in severe pain after his breakup with Amber Heard. It broke him, as he said, but did that stop him from moving on? Did he let his loneliness affect his professional life? He took his time but then embraced the change which is inevitable. 

Quote 9: “If you’re trying to create a company, it’s like baking a cake. You have to have all the ingredients in the right proportion.” –  Elon Musk

Relevance: You would be very lucky if you can make your very first venture achieve the success you desired of but that rarely happens. Isn’t it? You practice, fail but do not give up and that’s how you learn to build a company that creates value.  

Quote 10: “I think we have a duty to maintain the light of consciousness to make sure it continues into the future.”  – Elon Musk

Relevance: What do you think is the mission of SpaceX? Making human a multi-planetary species? Yes, that is one but what why make it a multi-planetary species? It is to keep the light of consciousness alive. To keep looking for the answers to questions like, why we are here? How does the universe work? 

Main Image: ©SpaceX

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“The most fundamental reason that even business people underestimate the importance of sales is the systematic effort to hide it at every level of every field in a world secretly driven by it.” — Peter Thiel

If you are looking for more insight on this subject, just go through the book. But before you do that here are a few quotes on sales from people who have been there and done that, so don’t forget to take a look. They are pretty insightful too.  

“The most fundamental reason that even business people underestimate the importance of sales is the systematic effort to hide it at every level of every field in a world secretly driven by it.” — Peter Thie 

1. “People don’t ask for facts in making up their minds. They would rather have one good, soul-satisfying emotion than a dozen facts.” – Robert Keith Leavitt
2. “Most people think ‘selling’ is the same as ‘talking’. But the most effective salespeople know that listening is the most important part of their job.” – Roy Bartell
3. “No matter how deep a study you make. What you really have to rely on is your own intuition and when it comes down to it, you really don’t know what’s going to happen until you do it.” – Konosuke Matsushita
4. “Selling is not a pushy, winner-takes-all, macho act. It is an empathy-led, process-driven, and knowledge-intensive discipline. Because, in the end, people buy from people.” -Subroto Bagchi, Co-founder of Mindtree,
5. “To Build A Long-Term, Successful Enterprise, When You Don’t Close A Sale, Open A Relationship.” – Patricia Fripp.
6. “Sales Are Contingent Upon The Attitude Of The Salesman – Not The Attitude Of The Prospect.” – W. Clement Stone.
7. “Keep your sales pipeline full by prospecting continuously. Always have more people to see that you have time to see them.” – Brian Tracy
8. “Every sale has five obstacles: no need, no money, no hurry, no desire, no trust.” – Zig Ziglar.
9. “Sales Success Comes After You Stretch Yourself Past Your Limits On A Daily Basis.” – Omar Periu.
10. “Keep Yourself Positive, Cheerful And Goal-Oriented. Sales Success Is 80% Attitude And Only 20% Aptitude.” – Brian Tracy.Here is one in bonus

“I have always said that everyone is in sales. Maybe you don’t hold the title of   salesperson, but if the business you are in requires you to deal with people, you, my friend, are in sales.” – Zig Ziglar

Main Image: ©Paramount Pictures

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Here is your fuel for the day. Same wisdom packaged in small packets of words.    

       1. “Your Attitude Not Your Aptitude Will Determine Your Altitude.” – Zig Ziglar

2. “Either You Run The Day Or The Day Runs You.” – Jim Rohn

3. “I got lucky because I never gave up the search. Are you quitting too soon? Or are you willing to pursue luck with a vengeance?” –Jill Konrath

4. “Don’t watch the clock; do what it does. Keep going.” – Sam Levenson

5. “Do you want to know who you are? Don’t ask. Act! Action will delineate and define you.” – Thomas Jefferson

6. “Well done is better than well said.” – Benjamin Franklin

7. “It’s not about having the right opportunities. It’s about handling the opportunities right.” – Mark Hunter

8. “Don’t wish it were easier, wish you were better.” – Jim Rohn

9. “People often say that motivation doesn’t last. Well, neither does bathing. That’s why we recommend it daily.” – Zig Ziglar

10. “Don’t let others convince you that the idea is good when your gut tells you it’s bad.” -Kevin Rose, Digg’s co-founder

    Main Image:  ©Reuters

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Before we jump to when and what for, lets put a light on the question “why attorneys at all?’’

Public interest lawyers work for the greater good of society and for individuals who are in need of legal assistance whereas a startup needs one when looking for a ‘value-driven’ solution for a specific problem it is facing. Focus your attention on the word ‘value-driven’. A lawyer might not just save you from getting sued for an accused infringement but also advise you on how to get things done legally to run a successful business that will save you money.

Do you know Mukesh Ambani-controlled Reliance Industries spent ₹ 1,187 crores on legal expenses in one financial year (2017-18)? Infosys Ltd did ₹1,043 crores while Kotak Mahindra Bank spent ₹823 crores.

Chandubhai Mehta, the managing partner of law firm Dhruve Liladhar and Co, recently said, “There is a degree of maturity among domestic companies and they have understood that good legal services don’t come cheap and the cost of not complying is now very huge.”

Now, you need not worry about such big numbers but it is wise to take care of things from start. One day you do plan to go big? Though it is important to understand that you would need a certain domain expert lawyer as per the requirement is. A General Corporate/M&A lawyer may not be a fit in Intellectual Property creation who may not be a perfect fit in case of a Private Equity/VC expert lawyer or when you need a Litigator. You will need a specialist for each domain and when you do so, it is wise to go with a reliable firm that host expertise in each domain. 

Now let’s go through a few things that would help us understand at what stage a startup might need an attorney.  

Company formation

Company formation basically includes what business structure (such as Sole proprietorship, One-person company, Partnership company, Limited liability company or a Private limited company) best fit your needs. You do not need a lawyer (or a firm) or hire an accountant unless you have investors pumping the money right at the start. If so is the case, the equity rights need to be sorted there and then. 

You can read about different business structures in India here. 

Founders Agreement

A founders’ agreement is a legally binding contract, that outlines the rights, roles and responsibilities of each owner in a business. It basically consists of vesting scheme and confidentiality (Business Concept and Technology) terms and conditions. 

IP creation

A lawyer will help your startup register its products and services for copyright and trademark protection. He would be there to save you from an accused infringement of intellectual property by your competitors.  

Staff

An attorney will help design a good standard employment agreement that will state the rights, responsibilities, and obligations of both parties during the employment period. Is it important? Yes. It would carry salary benefits, work schedule, restriction on confidential information, vacation allotment and termination policy (for e.g. ‘At-Will” Employment). 

Regulation

If your startup lies in the domain that is going through high disruption more like cryptocurrency or some fintech startup then you should not wait for a moment and start looking for the best attorneys.  

Angel/seed funding

A lawyer can help you evaluate your offer, negotiate your deal and make sure you comply with all requirements. A startup lawyer will help you understand the investment contracts and terms that you might not be familiar with. Only when you understand things you will be able to make the most of it.

Business Licenses

Business licenses can vary from simple tax registrations, a trade license or shops and establishment registration, manufacturing and export-import to labour and employment-related registrations. It will be wise to align these things with your attorney so you follow the norms and save yourself from costly legal suits and fines. 

Vendor contracts  

A vendor contract documents the terms of your agreement with your vendor. Marketing contracts, content supply agreement, distributorship agreements and advertisement agreements all fall under vendor contracts. An attorney will know the “how to’s” and intricacies of a vendor contract and will help you run a successful business. 

Conclusion:

I hope by now you must have got a fair idea of whether you need an attorney or any legal advice for your startup or not and when you will absolutely need one. It all depends on where you are in your startup lifecycle but you do need one at some point in time. Over to you. 

Main Image: ©HBO Entertainment

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Here it is:

• While underestimating its competitors
• While belittling the competitors while pitching to investors.
• While claiming that there is no competitor in the market at all.

Competition is a very subjective term and varies on even very minute details. Your product could be 10x better than your competition but why harm yourself just for boasting or in many cases due to lack of market knowledge.  

Let’s cut to the chase and understand why certain companies underplay the power they hold with the help of an excerpt from Peter Thiel’s book “Zero to One”  

Peter Theil writes, “What valuable company is nobody building? This question is harder than it looks, because your company could create a lot of value without becoming very valuable itself. Creating value isn’t enough—you also need to capture some of the value you create.”

“This means that even very big businesses can be bad businesses. For example, U.S. airline companies serve millions of passengers and create hundreds of billions of dollars of value each year. But in 2012, when the average airfare each way was $178, the airlines made only 37 cents per passenger trip. Compare them to Google , which creates less value but captures far more. Google brought in $50 billion in 2012 (versus $160 billion for the airlines), but it kept 21% of those revenues as profits—more than 100 times the airline industry’s profit margin that year. Google makes so much money that it is now worth three times more than every U.S. airline combined.

The airlines compete with each other, but Google stands alone. Economists use two simplified models to explain the difference: perfect competition and monopoly.”

“Perfect competition is considered both the ideal and the default state in Economics 101. So-called perfectly competitive markets achieve equilibrium when producer supply meets consumer demand. Every firm in a competitive market is undifferentiated and sells the same homogeneous products. Since no firm has any market power, they must all sell at whatever price the market determines. If there is money to be made, new firms will enter the market, increase supply, drive prices down and thereby eliminate the profits that attracted them in the first place. If too many firms enter the market, they’ll suffer losses, some will fold, and prices will rise back to sustainable levels. Under perfect competition, in the long run no company makes an economic profit.”

“The opposite of perfect competition is monopoly. Whereas a competitive firm must sell at the market price, a monopoly owns its market, so it can set its own prices. Since it has no competition, it produces at the quantity and price combination that maximizes its profits.”

“Think about how Google talks about its business. It certainly doesn’t claim to be a monopoly. But is it one? Well, it depends: a monopoly in what? Let’s say that Google is primarily a search engine. As of May 2014, it owns about 68% of the search market. (Its closest competitors, Microsoft and Yahoo! , have about 19% and 10%, respectively.) If that doesn’t seem dominant enough, consider the fact that the word “google” is now an official entry in the Oxford English Dictionary—as a verb. Don’t hold your breath waiting for that to happen to Bing.”

Conclusion:

When one is in perfect competition, the company tries to flaunt no matter what it has or has not whereas as a monopoly underplays the power it holds. I hope you got a better insight into the subject. Peter Thiel has his thoughts, please share your, whether you agree with his notions or not and how.

Main Image: ©Tech Animations

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If you are with me, let’s skip the jargon and verbose and get straight to work. 

Here is what you will get from this article.

• A few awesome real pitch decks that worked.
• Slides that you can include.
• Dos and don’ts to take care of while creating an investor pitch deck

Here are the actual pitch presentations of Airbnb, LinkedIn and mint.  

Now when you have a fair idea of how a very good investor pitch deck looks like, let’s structure what all slides they are made up of. 

The slides:

Company Overview

Choose the bullet points setting and include: What problem does your startup solve, your unique solution, something that will define how good is your team (ex-Googler or Facebook), traction would be the cherry on the cake. Also, do not forget to include where you are based out of. 

Your Mission and Vision of the Company 

Let’s not confuse between your mission and vision. Vision is simply where you see yourself in a certain period of time, i.e. your goal and mission is simply your purpose, why you are doing it. Keep it that simple.

The Team 

Investors invest in people and not a fictional entity, i.e. company, which is basically its people. After all the characteristics of any matter is determined by its elements. You can include their pictures along with their titles and what they bring to the table. The Problem 

You spotted the problem, good. Now, tell how big is the problem is and why it needs to be solved. Not just any problem that can be solved will interest investors. 

The Solution 

Pen down the overview of your solution in a precise manner. You can also very carefully merge the next slide which is ‘The Product’ into The Solution slide itself.  

The Product

Here you need to showcase key features of the product or service you are offering, major milestones attained and what are potential features that could be added in the future as you scale.

The Market Opportunity

Here you will answer what the market size is, at what rate do you project to capture a certain portion of that market. 

Customers 

Here you can include your major customers and partners which will help establish credibility to your solution in the market. You can simply include their logos and that would be sufficient. 

Technology 

Mention about the intellectual property rights the company posses for eg,  patents and copyrights. How your technology is superior to others in the market and why would your competitors will have hard time replicating it. 

The Competition 

One of the most important slides in the deck. This will showcase if will be competing or endeavouring towards an establishing a monopoly. In both cases, you need to know your competitors and how you have an edge over them.   

Traction 

Mention your companies early traction may it be site traffic, app downloads, strategic partnerships or media mentions. 

Business Model 

Here you will answer how do you plan to make money, what is or will be your pricing model.  

The Marketing Plan

You can merge this slide with the above if you feel so particularly in your case. It will basically cover how you plan your customer acquisition. It could be paid search, social media, TV, or radio etc?

Financials 

Here your numbers shall talk. Sketch your three- to five-year financial projections, burn rate. Talk about unit economics and key metrics such as expenses, total revenue and EBITDA.

The Ask

This one is simple! Is it? Here you express how much money do you need, for how long will that money last and what milestones you project to achieve with the given amount? Mention where you will invest this money in (technology, expansion, new hires etc) and who are your existing investors, if any.

You can vary the slides you include as per the round of funds you are trying to raise.

Finally, we arrive on the third part of this article which is taking care of dos and don’ts of creating an investor pitch deck.

Dos of creating a pitch deck:

• Remember to send your pitch deck to the investor in the PDF format prior to your scheduled meeting.
• Use consistent font size, colour and compelling graphics in your presentation.
• Be sure to include the following information on the bottom left of the cover page of your presentation: Confidential and Proprietary. Copyright (c) by [Name of Company]. All Rights Reserved. 

Don’ts of creating a pitch deck:

• Don’t use a lot of acronyms making it difficult for the investor to grasp the meaning.
• Do not try to underestimate your competitor. 
• Try not to exceed a slide limit of 15 or in some cases 20. Keep it small yet powerful.  

Conclusion: 

What you read above contains the essentials elements you need to create a pitch deck and some additional information to make it help your product or service stand out from the crowd. It is not perfect and you can always add and subtract from something you create as per your requirements.

Main Image: ©Entrepreneur Handbook

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Scenario number one: Three hypothetical co-founders have an equity share of 55%, 30% and 15% respectively. You are the one with majority shares i.e. 55%. An investor might look at it as if you do not value your co-founders yourself, lack trust in them or are they really not good enough. After all, investors invest in people and not just ideas and that is all you have when you begin. If that is a calculated decision and you can justify it then that’s good otherwise you might find yourself in trouble. 

Scenario number two: Two hypothetical founders split it simply as 50-50 for each. Now, suppose, a potential seed investor may see it as the red flag, seeding doubt in her/his mind regarding you having poor negotiation skills. If you can again justify enough that how you come to that calculation, you shall be fine. 

Now, when you know that splitting the equity wisely can have an impact on your startup’s growth, let’s dive deep and understand how to actually do it. 

We will learn to do the following two things to get to the answer.

Step 1: Follow a formula. Yes, a formula! 

Step 2: Setting up a vesting scheme for your startup

Step one shall help you find out what shall the per cent share be. The second step will help you find out answers to the questions like; Will at the very beginning each founder gets his or her full package of stocks or will there be a cliff to climb before reaching that number. It would help you legalise things, ultimately saving you from potential disputes later. 

Founders’ Pie By Frank Demmler

Notice the elements in the table below.

Your next job is to establish the relative importance of the elements by weighing each on a scale of 0 to 10. A tech startup ‘idea’ is fair to be weighed  7 or 8 whereas an idea of a restaurant may be weighed only 2 or 3. Similarly, a business plan may weigh less if the founders themselves are putting in the money by themselves. Same goes for other matrices too. 

In the table below, you got to fill the columns as per the individual founder’s contribution to that field. One who brought the idea to the table can be given 9. One with great industry connections can be assigned a better on the scale than other for this matrix. 

Let’s take a hypothetical scenario and see how things turn out. Read the tables below and analyse.  

Relative importance of the elements

Relative contributions of the founders

Now, when you have a fair idea of the equity split, let’s learn about the second step which is vesting scheme. 

Setting up a vesting scheme

If you are unsure about the risk-taking capabilities of your co-founders and fear that they might leave the relay in between, leaving you helpless, then you are not wrong to think like that. Setting up a vesting schedule is very important. You can not just your co-founder walk away with 20% of company share if he/she chooses to quit too soon.

Here is how a vesting schedule for a cofounder number 2 from the above table may look like. 

He/she has 44.2% of the company on paper, right? Unfortunately, that founder decides to leave the company or get fired within a year then as per your designed vesting terms he/she walk away with nothing. After the one year point, you get 25% of your stock and every month after that he/she gets an additional 1/48th of their total stock. This way they only earn all of their stock at the end of four years. Clean and clear, right?

Through the vesting scheme, you decide you can also understand what happens if an advisor, a board member or a co-founder is added later to the team.

Conclusion:

There are a hell lot of questions regarding equity splitting founders worry about and there not wrong to do so. It is good to worry, which mean you care for your startup. Keeping all questions aside, try this strategy and let me know if you agree with this approach or not.

Main Image: ©Columbia Pictures

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