1 - Foundation of equity splits

a - Contributions
Original idea
Who proposes the idea will get a little bit more equity
Role of founder
Who plays the more important role will receive more equity
Seed capital funding
Who contributes the capital more should get more equity
Motivation of each member
Who shows that he/ she is much more motivated, then deserving get more equity
b - Allow for unexpected contingencies
Changes in business model or founders switching roles
c - Right time
2 - Possible hurdles of equity split negotiation
Unfair feeling because founder tends to overestimate his/ her own contributions in
comparision with other co-founders
Founders may have conflict viewpoints about position/ role of someone
3 - Put ourselves in the shoes of Michael
If I were Michael, I would like to raise my voice as below:
First, I emphasize the common interests of all founders by sounding like : " Ok guys, we
already had a potential business, it will be so proud if we can together run this business
successfully. From the bottom of my heart, I have visualize how successful we will be".
Then, I will show the empathy with Georg's & Phuc's concerns by saying like : "Well
brothers, I know that you have individual plan to deal with. But as you guys can see, we
got quite lots of opportunities out there and thus the workload will increase compatibly. If
you two can arrange your schedule a little bit and spend more time on this project, I think
the work can go a lot more smoothly".
Next, I base on the past facts & figures to recommend for an equity re-split by sounding
like : " For the last agreement, we are initially quite satisfied with the equity split.
However, at the present, those old criteria of equity split seem to be not suitable any
more. As you can see from the handouts I gave you at the beginning of the negotiation,
the contribution of each member quite varies. Therefore, I suggest that we should modify
and complement some equity-split criteria as follow :
We need a logical framework to govern the allocation of equity or profit interest to
the various players. The structure is based on the logical value of inputs, provides a
premium for risk taken and works dynamically meaning that the allocation will
change as the inputs change.
We need a logical framework to govern the recovery of equity from individuals
when they separate from the company. The structure will recognize that the
company’s right to recover equity will depend on the nature of the separation from
the player. In some cases separation is the fault of the player (like not doing their
job), in other cases separation is the fault of the company (like a layoff). Both the
company and the player deserve protection from the others’ bad decisions.”