How to equally split share in a self-funded startup.

DomG37DomG37 subscriber Posts: 2
edited October 2016 in Startup Funding
I was approached by a guy I know and his potential partner to start a new company specialized in online sales. Joining their venture would mean that I would have to quit my day job to focus entirely on the startup. We would not be paying ourselves any salary.

Investor A (the guy I know) has been running a company by himself for about 5 years with a turnover close to $400,000. He knows how much money I am looking to invest if I join the venture.

Investor B is a newly retired member of the army with more than $100,000 in savings. He would be focusing 100% on the new company.

Investor C (me) works an engineer with about $35,000 in savings and great web programming skills.

Investor A and B are good friends. Their initial proposal was to each put in $40,000 and told me we would need $100,000 in total, so I'd have to put the other $20,000. With those investment, they offered me 20% shares, and they would each take 40%. My initial thought was that it was too low equity, so they counter offered with 20% shares for $15k. I know that they want me, since I have a lot of skills that they do not master and would have to hire a web programmer if I don't join the venture. I also know for a fact that I would at least be putting the same amount of work than these two, if not more since Investor A would be running his other business on the side.

Assuming we would all “fictionally” be receiving $50k in salary, then after a year, the $40k becomes $90k and the $20k becomes $70k. Therefore, over time, I think the initial investment is diluted by the amount of time put in before we start making a profit. What would you recommend as a counteroffer?

Comments

  • McCandlessMcCandless Boca Ratonsubscriber Posts: 52 Bronze Level Member
    Usually, from a grunt or sweat equity perspective money invested has a value of x4 versus x2 when you're talking about time.

    You can check out Slicing Pie

    From your description you say investor A & B put in $40K. How was that split? Did investor A put more, less or an equal amount compared to investor B? If $20K from investor C was put in and A and B investors had an equal amount wouldn't each member just get 33.33%?
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