How to share equity at a start-up before sales?
For many years, people have been trying to solve problems together as partners with their start-ups.
They also have been trying to become very good partners, but partnership is one of the hardest things and to define a specific code for this issue is not so easy.
Believe it or not, you are running a marathon. This is not a short-distance run. It may take a decade and it is very important who is beside you.
So, who is going to become your partner?
1- Working on the start-up full-time or part-time?
2- Just curiosity and trying to do something while before looking for a new job?
3- A new graduate who couldn’t find a job?
4- An experienced one but will quit after 6 months of trial,
5- Is this a start-up brotherhood with best friends?
6- A person who is going to burn all savings in the past 3 years?
7- Second or third-time founder who is experienced?
8- Or, angel investors as a partner?
Before beginning you should understand that you as partners should talk about everything at any time. There shouldn’t be built any walls between you guys!
Most of the founders start working and they stop talking about partnerships stuff after a period.
Seems like they have codes like the Fight Club.
The first rule of a start-up is: You do not talk about start-up. The second rule of a start-up is: You do not talk about start-up!
In fact, your only business is to talk more and more about the start-up and related things!
The truth is equity sharing can be solved exactly after recurring revenue. I mean, after the sales step but if you don’t have sales, you can talk about changeable percentages as equities in a range.
Before sales, there is no value in your start-up. It seems like a kind of project but of course, it is different from college projects. After-sales step, it is a real company serving customers. Even if you got just your first sales, you are a company.
If there are no sales, no second-time founder, no initial investment, and no experienced board members, you are all probably inexperienced and going to focus on product development.
Yes. You are going to focus on product development but you all probably have no idea about product-led growth as well.
You quit your jobs from SME or corporate business and you may have sectoral experiences but you are like a snail and you don’t know it yet.
Because of all, you will be in a rush and because of your dreams you are not going to talk about equity but you should talk!
Finally, if you are also away from incubators or accelerators, you are going to have really hard times buddy…
There are 3 rules for that kind of journey:
1-Be honest with yourself and each other. Are you really all together competent enough to execute your startup? Or are you deciding fully with your emotions because you are best friends since childhood?
2-Be honest about priorities in life. Is start-up going to come in the first step, second step, or third?
3- If you believe that everyone is competent and honest about priorities but there are no sales, no second-time founder, no initial investment, and no experienced board members, try to talk shares as with intersection sets.
3 things to pay attention:
Competent test, priorities at life, intersection set.
Finally:
If someone wants to leave before sales, they can leave with nothing. Because the start-up has no value. There is a huge uncertainty factor. No cash flows. Business at this stage is still defined as failed.
1- What is becoming competent in business?
Let’s imagine that your start-up is a kind of SaaS and it is a software business. It is a kind of sales intelligence tool. You have site experience and a little bit of problem-solution knowledge about the idea.
You are an ideator. (Remember from old articles, the idea is nothing but the execution is everything.) Your bro has no site experience, sales experience, or software knowledge.
There are tens of NO about your bro. In fact, your bro is a really good farmer. The best of the best. But you are best friends. Believe it or not, you both are just dreaming.
2- What are your priorities in life?
Let’s keep moving about sales intelligence start-up as SaaS. You and your partners are competent enough to move together. Okay. You passed rule number one. You guys are a hacker, hustler, and hipster team. Looking good.
Yes, you have no start-up experience but it seems everything is going to be fine. Partners A and B are going to burn their savings and they become full-time. Partner C is saving money to buy a car, have a baby, and going to become a part-time partner in your start-up but working mostly 7 days a week at the job.
So to be honest, no cash support and a guy working 7 days a week, have a family with a lovely baby… Your start-up will be partner C’s 3rd or 4th priority. The decision to keep moving together is all yours but talking about all clearly and becoming honest is very important in this step.
3- What is an intersection set?
Rules number one and number two are okay You are competent enough. Start-up is going to become your partners’ first or second priority in your life. Divide shares from 0–100% but with intersection sets.
For example. You are 0–30%. Partner A is 20–70% and Partner B is 60–100%. At least you will be successful in talking about this matter.
As it is seen you have max 30%. Partner A has 50%. Partner B has 40%. It is 120% but shares can flow from one side to the other.
The max number means you agree to -+10%. Actually, you are 20% but you can have 10% or 30%
It is the option of a partner who is not going to work enough or is going to leave.
With this option, you will decide to find a new partner or get those shares for yourself as partners.
You should be able to talk about this kind of stuff at the end of the day.
Talking about nothing is the worst thing.
There are some kind of start-up valuation and sharing equity methods but in my experience, there are no specific codes when there are no sales at start-up.
Valuations are just founders’ own thoughts before the sales step and they may change quickly or depends on circumstances.
As a result of all:
1- Remember that you are going to have a marathon and it may take a decade. Sometimes 5% equity is nothing between partners. Trust is important.
2- Remember that the first rule of healthy sharing is to become honest with each other in everything. Honesty is so important.
3- Remember that you should definitely talk about equity matters or you should find a way to talk. No other option except talking. Silence is very dangerous.
4-Finally, remember that there are no certain codes about this partnership matter.
#startup #entrepreneurship #equity #share #partners #business
