Gday, First of all I should tell you I'm a physicist, not a lawyer / economist. But that doesn't stop me from throwing this idea at you guys.
I had a fantastic time at startupcamp in Melbourne last weekend and it was the first time I was confronted with the whole equity thing. I've also read a bit of the discussion on this list about the subject. I've heard there are a number of the problems with splitting the "company" equally over all group members: 1 - it creates friction when - after the weekend - some people want to put more time in it then others 2 - it creates even more friction when serious money is about to be pored into the project 3 - investors don't like having to deal with too many people 4 - any serious decision making is hard to do if only a small part of the group remains highly active, especially when money is involved So here's my proposal: tell everyone to "bill" their hours to the "company" at a fixed hourly rate. Now we introduce a couple of rules: 1 - voting rights are weighted according to these amounts 2 - you are obliged to sell your share to the company for no more than these billed hours, the same goes for partial shares 3 - a majority (ownership-wise) can decide to "hire" new people under the same rules An example: A group of 7 bills themselves at $100 / hour. The startupcamp counts as 30 hours, so everyone starts out with $3000 and the total company is "worth" $21.000. Alice is really the only one who cares about this idea and spends the next month working full time on it while the rest is watching footy. Her 160 extra hours, plus the original $3000 put her share at $19.000. The others own $18.000, which means Alica now owns more than 50% of the company. She then heads off to the nearest VC, obtains half a million dollars and buys out the other 6 people at $3000 each. (After that the VC might buy her out as well of course, like Obi One Kanobi(?) said: "there's always a bigger fish") But here's the *really* interesting part: investors should be invited to the ideation phase of startupcamp. They can then offer a stipend to the group, in exchange for a share in the company. For example: Investor Bob really likes the groups third idea and is willing to pay each of the participants a stipend of $500 dollars for the weekend for executing it. In exchange he wants a $1500 share per person in the company, under the same rules. Using the numbers from the previous example, the group members now own $2500 each, so the investor now owns $1500 / ($1500 +$2500) * 100% = 37% of the company. Worst case outcome: the group leaves the weekend with $500 in cash, a nice portfolio project and a lot of new stuff learned. Medium case outcome: the group gets bought out of their own company and leaves the weekend with $3000 cash (and probably a job). Best case outcome: the group ends up with a very successful company and buys out the investor. And there's no reason to stick with one investor. I would like to see the place crowded with hungry financial consultants offering bids during this intense one hour phase where companies decide on their product... With a bit of (p)luck, people could actually make a living out of jump-starting new companies. Open questions: * how to set the hourly rate: too much and they cripple their own company and become unattractive to investors. Too little and they are giving their company away to a random guy on the street. The rate should probably take into account the risk factor. * Borrowing money (and other liabilities). I suggest that if the company borrows money, only the people who approved of the transaction are responsible. I.e. if the company goes bankrupt, you can't get the money from your passive team mates. * How do you prevent the majority from buying *themselves* out with company money and not taking care of the minority? * Who can turn this into a legal document, preferably immune to the investors army of lawyers? I'd love to hear your thoughts about this. Cheers, Sjors --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Silicon Beach Australia" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/silicon-beach-australia?hl=en -~----------~----~----~----~------~----~------~--~---
