What is an equity position?

What is fair equity for no salary Executive level position at early stage company?

• I am considering being the first U.S. employee of an overseas startup which has a shipping product and customers in their country.  It is a very good market space, they have started getting attention and have good potential as they have some clear differentiators.  The two founders have boot strapped the development effort and now have about 10 employees.  They have no investors right now.   My role would be to at a VP level, get the company incorporated in the U.S., run operations here, get sales and revenue traction, establish market presence and propel them to the next level.  I’ll also possibly participate in getting a round of funding which they are going to need.   They cannot pay me any salary at this time, only percentage of sales as it happens.  When funding occurs, this will change but the timing on that is unclear, maybe 6 months or more.  I am a senior executive with 20+ years experience and contacts in the industry that can really benefit.  What type of equity would be fair in this situation?

• Answer:

  The equity that you ask for should be comparable to the value you provide the company. Too many times start-up founders have an idea which is good but do not have the skills to implement the idea and need people like yourselves to do it and then think that for a low equity position - you should do all the work for the chance to be in their start-up that may or may not take off especially in a new country. You need to determine how much work is going to have to happen to get the company in a position to sell product.  If that is going to take awhile before you have a chance to sell the product - then the equity goes up.  If I look at the role you are performing - in a large company you would be a Country Manager. Things to ask yourself.  Did they do the homework to find out if the U.S. is a viable market for that product.  Are their competitors, does it have the features needed.....marketing 101.  If the answer is no, then the equity should go up again as you are taking greater risk. I went through a similar exercise with an Israeli company where they did not have experience in Canada.  They sold the product abroad, but they didn't have proper marketing for North America (was cheezy), needed new packaging, didn't have contacts...etc.  They wanted myself and partner to do ALL of the work here and take all of the risk in the "hope" you might see some sales and they were offering no equity nor upfront retainer - so answer was a big NO. Equity is an interesting thing because 100% of 0 dollars is still 0.  I would definitely see a lawyer/accountant that has experience with this and have a very tight contract.  You need to understand what percentage the U.S. will play on their revenues as that should drive the amount.  You will also want to make sure that your percentage does not get depleted with the funding you help bring in as well for the whole company.  It is your contacts --- not theirs. You need to understand the value of the current company without the U.S. So say it is $2M today.  What percentage of the revenue is the U.S. going to account for in next 3-5 years.  If it is going to double the size or greater of the company than you should ask for a minimum of 20-30%.  If they are going to deplete your amount based on funding - I would make sure I got a finders fee part of the funding piece which percentage differs based on amount - usually in the 5-10% range. Bottom line - there are accountants and lawyers who deal with start-ups and funding all the time and I would talk to one of them and get their thoughts based on the information you can provide them on amount of work you are doing, their current value, U.S. value, and the funding piece.   Get a very tight contract.  It is so easy to get excited about a new start-up as have been there, but have seen the good, bad and the ugly.