Equity Compensation Master - CMU
[Pages:32]Equity Compensation
Rules of thumb, guidelines, conventional wisdom & other considerations
Frank Demmler
Founders' Pie
Getting started correctly is critical!
Founders' Pie
Conventional Wisdom
? Count the number of founders ? Divide the number of founders into 100 ? That's the "fair" percentage for each founder
Founders 2 3 4
Percent 50.0% 33.3% 25.0%
? Frank Demmler 2013
All Rights Reserved
3
Founders' Pie
Conventional wisdom is wrong, and could be fatal
? Frank Demmler 2013
All Rights Reserved
4
Slicing the Founders' Pie
Frank Demmler
Slicing the Founders' Pie
? How much stock ownership should go to whom?
? Share the wealth with those who help to create the value and thus the wealth
? Realize a harvest of at least 5 to 10 times the original investment
? Make sure the company prospers and grows thus creating a huge, shared pie
? Frank Demmler 2013
All Rights Reserved
6
Distribution Issues
Differentiation
Reward system recognizes differences in contributions among team members
Performance
Reward is a function of performance (as opposed to effort)
Flexibility
Reward system acknowledges and accounts for changes in contributions of team members
? Frank Demmler 2013
All Rights Reserved
7
Considerations of Value
Contributions in certain areas are of particular value to a venture.
Idea
Business plan preparation
Skills, experience, track record, or
contacts
Commitment and Risk
Responsibility
? Frank Demmler 2013
All Rights Reserved
8
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