Ask HN: How to offer sweat equity

#1

Post by darrenshrwd » Wed, Nov 23, 2016, 4:50 AM UTC

I have an early stage startup, I am wanting partner(s) and I want to offer sweat equity rather than remuneration. The problem is that is only early stage based on the launch date. Not based on the amount of time I have worked on it. I have worked on it for about 11,000 hours.

(most certainly not a MVP)

I currently own 100%, but of course I will still be working on it...so that others and I can earn more shares I could say my 11,000 hours equals 50% with the other 50% 'up for earning' by further sweat?

So that would mean 22,000/100 = 220 hours for 1% stake. Given that the company currently has zero revenue and is only just starting to bring on users I am not sure if I will get any interested parties based on that. Are there better ways of doing this?

Re: Ask HN: How to offer sweat equity

#2

Post by anilgulecha » Wed, Nov 23, 2016, 5:06 AM UTC

Give your company (and currently done work) a valuation. Say $100000. Assign yourself 100 shares from the company. Each share is now valued at $1000.

Now a new-comer brings a certain value.. say $20000. Hence give the newcomer 20 shares.

The variables are essentially, current value of the work, and the value that the new partner would bring.

Re: Ask HN: How to offer sweat equity

#3

Post by darrenshrwd » Wed, Nov 23, 2016, 5:17 AM UTC

anilgulecha wrote: post #2

Give your company (and currently done work) a valuation. Say $100000. Assign yourself 100 shares from the company. Each share is now valued at $1000. Now a new-comer brings a certain value.. say $20000. Hence give the newcomer 20 shares. The variables are essentially, current value of the work, and the value that the new partner would bring.

Ok, that makes sense so the issue may be to agree on the value of the platform before it really has traction.

I know the quality of my work is high but that many others have failed to compete with the major well funded players in this space.

I guess the value has to be based mostly on potential revenue at such an early stage.

So if there are three well establish direct competitors (in Australia) would I look at what percentage COULD be gained and the value of one of those competitors?

Re: Ask HN: How to offer sweat equity

#4

Post by anilgulecha » Wed, Nov 23, 2016, 5:34 AM UTC

darrenshrwd wrote: post #3

anilgulecha wrote: post #2

Give your company (and currently done work) a valuation. Say $100000. Assign yourself 100 shares from the company. Each share is now valued at $1000. Now a new-comer brings a certain value.. say $20000. Hence give the newcomer 20 shares. The variables are essentially, current value of the work, and the value that the new partner would bring.

Ok, that makes sense so the issue may be to agree on the value of the platform before it really has traction. I know the quality of my work is high but that many others have failed to compete with the major well funded players in this space. I guess the value has to be based mostly on potential revenue at such an early stage. So if there are three well establish direct competitors (in Australia) would I look at what…

Value is really something you have to think about right. Value it too high, and the person may not think it worth their while for the piece they get, value it low and you feel cheated.

A good proxy would be : how much in salary would it take a good engineer with some product know-how to build what you've built.

Re: Ask HN: How to offer sweat equity

#5

Post by darrenshrwd » Wed, Nov 23, 2016, 9:08 AM UTC

anilgulecha wrote: post #4

darrenshrwd wrote: post #3

Earlier quoted context omitted.

Ok, that makes sense so the issue may be to agree on the value of the platform before it really has traction. I know the quality of my work is high but that many others have failed to compete with the major well funded players in this space. I guess the value has to be based mostly on potential revenue at such an early stage. So if there are three well establish direct competitors (in Australia) would I look at what…

Value is really something you have to think about right. Value it too high, and the person may not think it worth their while for the piece they get, value it low and you feel cheated. A good proxy would be : how much in salary would it take a good engineer with some product know-how to build what you've built.

That proxy is probably the only one that makes sense at this early stage, effectively it could be worth absolutely nothing or millions in x years.

Re: Ask HN: How to offer sweat equity

#6

Post by darrenshrwd » Wed, Nov 23, 2016, 9:16 AM UTC

anilgulecha wrote: post #2

Give your company (and currently done work) a valuation. Say $100000. Assign yourself 100 shares from the company. Each share is now valued at $1000. Now a new-comer brings a certain value.. say $20000. Hence give the newcomer 20 shares. The variables are essentially, current value of the work, and the value that the new partner would bring.

So going with your sample of $100,000.

1. I have 100 shares 2. Newcomer does $4000 worth of work and therefore gets 4 shares. Meanwhile I have done another $6000 worth of work so I get 6 shares, there are now 106 shares in the company and the company is worth $110,000 (until it can be properly valued based on other metrics).

Just writing this out for myself really, I realise shares issued don't have to be divisible by 100.