Should I give away equity in my business

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I am contemplating giving 10% of my business to an IT sales friend to try and have him help me grow the business.

I've been a control freak my whole life so this is a big step for me.

I haven't agreed to anything but he isn't willing to do any commission splits and wants equity in the business.
this is sort of like a marriage so I know it's a big step.

I thought about making the decision after he comes back from vacation.
 
No, as a business owner for 30 years,,,,NO
 
If I've learned anything from watching Dragon's Den / Shark Tank....

Kevin O'Leary is an asshole
 
Ask this question at buildersociety.com.
 
Just hire someone or I can give you a loan you pay me 25% of sales until paid in full the 5% in perpetuity. That way you keep all you equity at this point you need to keep as much as you can
 
Have you work with the guy before? If it goes through without you guys first work together, then it's like getting married before going on any dates.
 
Plutoburn said:
Have you work with the guy before? If it goes through without you guys first work together, then it's like getting married before going on any dates.
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We've worked together on a few deals. Like most salespeople he isn't the easiest to get along with. But he is good in sales which I need at this point.
 
If you are willing to give up 10% equity ... and that should be a big IF ... make sure that it is in return for results rather than effort. What is your company legitimately worth right now? The proposed equity stake is worth 1/10th of that. You can either pay him commissions in equity or you can pay him commissions in cash and give him the right to buy into the company at an agreed upon price up to that 10%.

Whatever you do, don't just give him 10% in return for a future good faith effort to help grow the business.

Edit: and don't even do the former unless this guy is really good and you can't get someone better. There are a lot of good salespeople out there who won't expect an ownership stake. Hire one of them instead unless this guy is legitimately much better than anyone else you can find.
 
Ever seen Silicon Valley? If you haven't, watch all of it and get back to me.


Hes going to use that 10% for evil.
 
I would not do it. Once you start to grow you'll end up regretting it. Save up some money and hire a bunch of sales people.
 
10% is a lot to give up for a sales guy.
 
Do not give equity. Hire a sales guy if you need it.
 
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Not giving away equity seems to be the consensus. He is on vacation until the 13th so this is very good information to digest.
 
Tell us what type of business it is. Actually I want to know what are the benefits of having just 10%. You still have primary control over everything since you own 90%. What does your IT sales friend get.
 
What are you getting for your 10%. If it's just labor, you can find and hire similar skill sets and pay a salary without giving up equity. Either tell him to take a commission gig with equity potential assuming he meets well thought out guidelines or skip this.

Even if you decide to give him equity, it shouldn't be permanent. It should revert back to you if he fails to meet specific benchmarks. Build in a renegotiation period. Also, write in a buyback clause so that you can always buy him out at a predetermined value if it works for you.
 
panamaican said:
What are you getting for your 10%. If it's just labor, you can find and hire similar skill sets and pay a salary without giving up equity. Either tell him to take a commission gig with equity potential assuming he meets well thought out guidelines or skip this.

Even if you decide to give him equity, it shouldn't be permanent. It should revert back to you if he fails to meet specific benchmarks. Build in a renegotiation period. Also, write in a buyback clause so that you can always buy him out at a predetermined value if it works for you.
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This makes the most sense. I wouldn't just give 10% away to someone in an attempt to partner with them or hire them. What do they bring to the table? Is this going to be long term? Are you giving him 10% b/c you need cash and he brings it or does he bring an expertise with him?

I'm not business expert but I've watched a LOT of Shark Tank. ;)
 
This is what I used to do and still do on the side for a living TS. I was basically a VC with a focus on brokering Equity investments in companies.

You do not provide enough information to answer your question properly but here are some thoughts and points to consider.

If you are a control freak then this may be a bad idea for you. You can have a successful business as a control freak but it will be limited in size to how many cycles you have because of your need to put your fingers in everything and inability to empower and trust. As a first rule I would never direct an equity investor into an investment with someone who is a control freak.

If he is not putting in Cash into your business make the Equity an 'Earn In' tied to goals and deliverables.

The simple equation I use and pose to all my prior clients looking to give up equity in their company is this, 'what real value (not future or projected) can you defend for your equity today? And what 'real value' can you put on the Investment today (dollars or service)? If the 'real value' of the INVESTMENT today is greater than the 'real value' of your equity today, it is always a good trade and you should take the investment'.
 
Bitcoin said:
I am contemplating giving 10% of my business to an IT sales friend to try and have him help me grow the business.

I've been a control freak my whole life so this is a big step for me.

I haven't agreed to anything but he isn't willing to do any commission splits and wants equity in the business.
this is sort of like a marriage so I know it's a big step.

I thought about making the decision after he comes back from vacation.
Click to expand...

Give him phantom equity if he's worth it. Maybe setup phantom equity system based on 10% and have a system setup for growth where other talents can also earn into the system after X amount of years.
 
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