For most startup businesses, offering money to partners isn’t an option. Instead, most entrepreneurs will offer the potential of the business by offering equity. How can one be sure however, that the equity of a company is being divided in a strategic and smart manner?
Weston Bergmann, the lead investor in BetaBlox, offers four different suggestions to help splitting equity in a valuable manner. Bergmann’s suggestions are: (1) Vesting equity is smarter than static equity; (2) Compensating value, not time; (3) Being transparent about what the job is; (4) Calming your worries. These four strategies are intended to help entrepreneurs know how to divide equity in a strategic manner.
The suggestion of vesting equity versus static equity is based around the difficulty that a sizable percentage of equity may be given to partners without a careful calculation of how long they’ll be with the business or the amount of work they’ll put in. With vesting, entrepreneurs are encouraged to stay with the start up work hard.
Bergmann provides an example of how vesting equity promotes investment in the startup among partners. “Bob wants 25 percent to work for John. John agrees that, if the job gets done, Bob is well worth that percentage. To protect himself, John puts Bob on a five-year vesting schedule. Every year that Bob is working for the company, another 5 percent is set in stone. After the second year, Bob gets a job at Google and quits the startup. Two of his years, a total of 10 percent, have vested. Bob keeps the 10 percent but the balance remains with the company,” said Bergmann.
On a more general level, Bergmann advocates being upfront with partners in a small businesses. Rewarding partners based on how much value they bring to the organization versus merely the time they put in and being completely transparent about the responsibilities that partners have to endure allows prudent decisions to be made on the part of partners.Finally, Bergmann encourages entrepreneurs to not worry about making any errors in the running of a business. “The biggest mistake you can make when splitting up equity is worrying about making mistakes. Entrepreneurs likely make more mistakes-per-hour than any other profession. Get used to it,” Bergmann notes.
Equity not enough? Overnite Capital offers a quick, cash flow to expand your business. Overnite Capital supports various sectors, including and handles factoring lines of credit from $100,000 to $5 million.
Unlike traditional bank lines of credit, that focus on a credit score, factoring focuses on receivables from customers and their ability to pay. Where lines of credit may be denied to companies with high growth curves, factoring is a great option, based on a company’s customer base.
Overnite Capital focuses on helping young entrepreneurs in a manner where the credit score is not the sole indicator of a businesses’ worthiness for funding. For more information, please call us today or message us via the Contact Us tab.