

How much stock to offer business partner? - ravdoug

I'm forming an LLC based on an idea I created. I have a business partner who brings much of the expertise. Although he hasn't asked for stock at this point, I want to offer him some ownership. I'm considering offering him 40%. What would you do?
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geoffw8
What would I do?

I guess firstly I'd try and be as realistic as I possibly could, what I mean
bu that is to approach this in a real hard-ass way as opposed to a "its my
idea, so I should keep x" kind of way. But you don't seem like that kinda
guy/gal.

One of the main things you should take into account is longevity of the
relationship - if you think this guy might be around for a few months, then
his job is done and he's off elsewhere - you'll want to make sure his stock
has a vesting type option to ensure that if he does take the stock, and leaves
in a few weeks because I don't know, say he gets a better offer, his wife has
a baby - then you'll want to make sure he doesn't take 40% of the stock with
him.

In the same breath you'll want to make sure you take into consideration how
much effort/available this person can bring to the table. Do they already have
a full-time job? Are they just bringing you the odd-contact? Or are they full-
blown in it until the death?

I would also put a serious value on this guy. I suppose the short answer to
your question "what would I do" is honestly think, if I continued on my own
path for x, how much could I achieve alone? If what I can achieve is quite a
lot, then would I be 30% better off (I mean in stock terms) waiting until I
have something to show and THEN bringing on this guy (or filling this role,
even). Obviously totally depends on your business type.

Additionally, the old school answer to this question is essentially the golden
rule - if you give this guy 40% of your business, will your 60% be worth more
than the 100% originally was because of the effect he will have on the
business?

Best of luck.

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ravdoug
Thanks, Geoff. Good points. My business partner brings a lot of added value to
the table, far more than I can accomplish alone. I intend the relationship to
be long term, and he's expressed the same intent. Whatever I offer him, I want
to maximize his incentive for sticking with the project and adding value.

