Need help figuring out all equity / no cash allocation for employee #1 working p/t

I have a startup that I’ve been developing for about 5 years in my small amounts of spare time, and I have lots of interest from people in my field, and a trial beginning soon with a big fish potential customer.  I have also written a book on the topic and have sold a number of copies without doing a big launch yet (holding off for strategic reasons).  Since I have a full time job that pays very well, I’ve been looking to find someone to help out in a big way… Strategically I need to get some utility patents, and through luck I found someone who could be a near perfect employee #1.

He’s an IP lawyer who has experience with co-founding a startup too.  He’s looking for work, but lives with his parents, and is very keen on my company as it’s in alignment with his goals.  We discussed him coming on and he wants an equity stake.  He’s open to 100% equity / no cash.  He’s also only willing to put in about 1/2 time effort until we prove ourselves with revenue coming in or perhaps external investment.  At this point I also have at least 2 private investors interested, yet I would rather go slow and see how far we get bootstrapping things, or perhaps taking on some family loan money.  I would like to avoid VC funding.  It seems like things get much more complicated when bringing on investors.

So my question is, based on my situation, how do I figure out how much equity to give him?  Is it possible to give a small amount to start, and once revenue comes in, then increase his shares by a pre-determined amount incentivising him to work full-time on this (perhaps giving him a salary at that time also)?  I’m not sure about giving him x % knowing I’m getting partial effort from him in the beginning.  Yet at the same time, he will save me tons of money allowing me to have free reign in pursuing broad patent protection, and having him also help with biz dev efforts.  What would be a good approach in addition to giving him a classic 1 year cliff + 4 year vesting period?

I imagine I also need to come up with a valuation here, to determine x % of ___.  Any ideas on how to do this?

What do you think?  Looking forward to your help!

  • If he’s an IP lawyer with experience, why is he living with his parents? Pursuing patent protection is probably a waste of time and money, and even worse it will distract you from your real goals.

    If you’re sure you want to bring him on, give just him stock options that will vest over a period of 4 or 6 years. If he’s a sucker he might be willing to put in a lot of effort for a symbolic amount.

    My advice to your prospective co-founder would be to reject your offer and get a real job instead.

  • If your product has been in the market for more than 1 year, you cannot file a patent on it.

    In fact in many countries other than the US you cannot file a patent after your product is on sale period.

    I would seriously consider this before bringing an IP lawyer in just to have him twiddle his thumbs. However if you have a ton of protectable ideas in the queue, then perhaps it might still be worthwhile.

    Here’s how you can do it. Figure out the amount of time he will be spending on the applications, come up with a rate/hr, then come up with a pseudo-valuation of your company at this stage. Say $1M. Then divide that and you come up with his “equity”. You could arrive at some mutually acceptable discount as well.

  • … [Trackback]

    […] Read More on to that Topic: […]

  • … [Trackback]

    […] Find More Info here on that Topic: […]

  • … [Trackback]

    […] Read More here to that Topic: […]

  • … [Trackback]

    […] Read More here to that Topic: […]

  • {"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

    You may also like