Comment by tom_rath | Hacker News Reader

Comment by tom_rath | Hacker News Reader

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I'd offer only commission on sales (perhaps add in profit sharing if he'll do other work in addition to sales -- you don't want to penalize him for those parts of his job which do not involve selling), that way his performance will be rewarded directly. It's your company and the equity is yours. 100% It doesn't belong to someone you pay to work for you.

He might have been "very helpful", but he's not risking everything to build a business. He may have put in a few extra hours on the side here and there (and pay him for those if you'd like), but it really doesn't compare to the time and money you yourself have invested in the enterprise.

It's your company. You built it.

This fellow's blog (and particularly this post) may be helpful for your situation:

http://nukemanbill.blogspot.com/2008_05_01_archive.html

Thanks tom_rath.

That story is particularly apt in my case. The "sudden thrust" for equity seems to have come after we got a cold-call from two very large companies within the space of three days. But not to be a cynic, I plan to give him the benefit of doubt.

Perhaps I should give him two choices - work part-time (i.e. keep his day job) and get a commission on sales, or go full-time with no commission and get equity.

agree with tom_rath (upmodded). you shouldn't give out equity if you don't know the value of what the other party is bringing to the table. And if sales do not cover their own cost you are losing money having him work for you.

Also, never forget that issuing equity takes time and money for handling the lawyer, accountant, etc. It also significantly reduces your flexibility down the road if you need to reincorporate, transfer assets, etc. And it is easy for things to get messy if there are problems. You want to keep your organization as flexible as possible.

If I were in your shoes I'd offer an excellent commission on sales and give your friend an option to purchase equity in the company up to a set amount at some reasonable valuation. Treat your friend's required investment the same way you would treat an investor at this stage. If he helps the company grow your agreement becomes a very good deal.

Thanks for the advice. It is very much appreciated.

I like the idea of giving him an option. It aligns our interests and should look more tidy to other investors down the road.

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