You get Founder's shares for taking personal Financial Risk!

You get founder's shares in direct proportion to the personal financial risk you're willing to take.  Are you putting money into the company?  Are you working at least 50% time DURING THE WORKDAY for FREE (i.e. for equity).  I talked about this in the university context in my post on Issues with Founders - Have a Buy-Sell Arrangement (and never have more than 3 Founders)

This just came up again with a Designer who is very gifted and has invented some very cool products and is looking to put together management teams to spin these things out.  In one case he's invested the equivalent of a friends and family round (several hundred thousand dollars) and business-types are asking him for Founder's Shares.  I told him that if they're willing to work for no charge for 6-12 months, then that changes the equation, otherwise they're not "founders', they're "early members of the management team" and that calls for options instead of founder's shares (that's what employee stock option plans are for!)

Business people are smart and aggressive and they know what they're looking for in a good deal.  When you're a designer or inventor, plenty of people want to hop on board after you've "de-risked" the deal. 

One great example is a successfull startup CEO, I'll call him SJ.  SJ tells potential companies that want to bring him on board, 'don't hire me'.  Instead, he tells them they should do some stuff together, get to know each other before making it permanent.  It's sort of like dating before getting married.  It's hard to get rid of a CEO (or other senior executive) once you've brought them on board!  A really strong talent isn't desperate for your deal, they're committed to a deal that is right for both parties and will make a time and effort investment to make sure you're deal is right for both sides.  If not, everyone graciously goes home.




 
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