Should I give away equity in my business

Discussion in 'Mayberry Lounge' started by Bitcoin, Sep 4, 2018.

  1. Bitcoin

    Bitcoin Blue Belt

    Joined:
    Feb 9, 2018
    Messages:
    589
    Likes Received:
    399
    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.
     
    Silent Liker and Clippy like this.
  2. genecop

    genecop Red Belt

    Joined:
    Sep 9, 2007
    Messages:
    9,454
    Likes Received:
    10,201
    No, as a business owner for 30 years,,,,NO
     
    90 50, ToxicShocker, cooks1 and 13 others like this.
  3. Clippy

    Clippy Canadian Hitler

    Joined:
    Jun 13, 2015
    Messages:
    38,509
    Likes Received:
    131,521
    Location:
    An office
    If I've learned anything from watching Dragon's Den / Shark Tank....

    Kevin O'Leary is an asshole
     
    2DUM2TAP, lsa, yamahacrasher and 3 others like this.
  4. Soma

    Soma Breathe the body deep

    Joined:
    Dec 27, 2004
    Messages:
    4,582
    Likes Received:
    848
    Ask this question at buildersociety.com.
     
    Bitcoin likes this.
  5. Bitcoin

    Bitcoin Blue Belt

    Joined:
    Feb 9, 2018
    Messages:
    589
    Likes Received:
    399
    What would be the main reason?
     
  6. My name is

    My name is Shawn

    Joined:
    Aug 19, 2014
    Messages:
    7,479
    Likes Received:
    7,704
    Location:
    the 572nd best place on earth
    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
     
    Bitcoin likes this.
  7. Plutoburn

    Plutoburn Alpha booze head

    Joined:
    Apr 17, 2005
    Messages:
    10,119
    Likes Received:
    4,532
    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.
     
    90 50 likes this.
  8. Bitcoin

    Bitcoin Blue Belt

    Joined:
    Feb 9, 2018
    Messages:
    589
    Likes Received:
    399
    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.
     
  9. Milgrim

    Milgrim Australopithecus - not your average hominid Platinum Member

    Joined:
    May 28, 2006
    Messages:
    7,781
    Likes Received:
    10,578
    Location:
    Port Dalhousie
    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.
     
    lsa, aerius, Clippy and 3 others like this.
  10. OMGstreetfight

    OMGstreetfight Fred Loya Insurance shill

    Joined:
    Jan 4, 2009
    Messages:
    16,771
    Likes Received:
    18,562
    Location:
    LA
    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.
     
  11. plataoplombo

    plataoplombo Blue Belt

    Joined:
    Aug 23, 2017
    Messages:
    863
    Likes Received:
    947
    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.
     
    NorwegianWood and 90 50 like this.
  12. mjmj

    mjmj Black Belt

    Joined:
    Jul 19, 2013
    Messages:
    7,277
    Likes Received:
    10,508
    10% is a lot to give up for a sales guy.
     
    90 50 and Which Doctor like this.
  13. pinger

    pinger Brown Belt Platinum Member

    Joined:
    Jan 27, 2006
    Messages:
    4,374
    Likes Received:
    5,257
    Do not give equity. Hire a sales guy if you need it.
     
    Last edited: Sep 4, 2018
  14. Bitcoin

    Bitcoin Blue Belt

    Joined:
    Feb 9, 2018
    Messages:
    589
    Likes Received:
    399
    Not giving away equity seems to be the consensus. He is on vacation until the 13th so this is very good information to digest.
     
  15. MadSquabbles500

    MadSquabbles500 Steel Belt

    Joined:
    Jun 29, 2011
    Messages:
    28,357
    Likes Received:
    12,865
    Location:
    New Jersey now Queens
    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.
     
  16. panamaican

    panamaican Senior Moderator Staff Member Senior Moderator

    Joined:
    Aug 18, 2009
    Messages:
    36,003
    Likes Received:
    34,102
    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.
     
    BearGrounds, cooks1, lsa and 9 others like this.
  17. TheNinja

    TheNinja Gold Belt

    Joined:
    Mar 8, 2005
    Messages:
    15,610
    Likes Received:
    11,131
    Location:
    East Bay, Cali
    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. ;)
     
  18. MikeMcMann

    MikeMcMann Gold Belt

    Joined:
    Aug 15, 2015
    Messages:
    20,938
    Likes Received:
    25,724
    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'.
     
  19. Oeshon

    Oeshon ช่างมันเถอะ

    Joined:
    Oct 12, 2006
    Messages:
    26,517
    Likes Received:
    9,364
    Location:
    Thailand
    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.
     
    Bitcoin likes this.
  20. SmilinDesperado

    SmilinDesperado Silver Belt

    Joined:
    Jun 7, 2015
    Messages:
    13,173
    Likes Received:
    26,214
    Take his wife as collateral
     
    NorwegianWood, 90 50, lsa and 2 others like this.

Share This Page

  1. This site uses cookies to help personalise content, tailor your experience and to keep you logged in if you register.
    By continuing to use this site, you are consenting to our use of cookies.