Evolution of Negotiation, Phase 1

Hey Mr. O! Hope all is well!

I've started working on a new project and dad referred me to you with this question since you are the expert :)

We are three people in the team, me and my friend are the founders and the third guy is responsible for the tech side and will build the website for us which isn't too complicated yet time consuming.

We want him to stay with us in the long run and he is willing to start building the website for shares, so I was wondering what will be a reasonable agreement between us. we were thinking of starting with 10%, with 5% guaranteed and the rest can get diluted with every round. What do you suggest?

Im sure you're very busy so no pressure in answering this!!

All the best,

Adi

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Adi,

Nice to hear from you.

Assuming the third guy is NOT a founder, and because a. you would like him to stay, b. you are at a very early stage, c. you cannot pay for his work in cash therefore the only option you really have is giving him equity.

Equity can come in to ways a. Stock/shares b. options.

I would go with options not stock.

Options can be given as part of a greater option plan which eventually, if you will be funded, you will have to have.

Option plan is usually over 4 years and are based on time and goals.

I would suggest the following:

1. Give him 4% options

2. Price should be 0.1 cents (so you give it to him practically free)

3. Vesting time – over 48 months 1/48 of the 5% each month starting immediately)

4. Set some other goals for him to achieve to bring him up additional 1% so he will have a total of 5%

That means that if he work with you for the full 4 years and complying with the goals agreed etc.. he will have 5% of the company. If he leaves b4 the end of 4 years he will receive only the relevant vested part. For example if he will leave after 1 year he will only have 1% and the rest 3% will be returned to the option bank to be allocated to other new employees

Hope it helps

Mr. O


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