Entrepreneurial Goldmine

I recently came across an interesting tool that can help founders of a start-up put logic and science behind the art referred to as their new idea.  Trying to determine how to split the founder’s equity can be extremely painful for some entrepreneurs, but I would advise that if you have difficulty with the equity conversation, you’re going to have bigger problems later.

Entrepreneurs, especially those who are bootstrapped, must make tough choices and participate in difficult conversations if they hope to succeed.  However, it always helps when you can use a model that provides the framework and structure to apply sound logic to that tough conversation.  If you are the one with the idea or if you hold one of the critical keys to success, you don’t want to blow the deal up before it gets started, but you also don’t want the deal to be unfair.  This tool gives you the framework to SPEAK NOW, so you don’t regret not speaking up later…because when it comes to money, we’re all sensible and logical right!

Okay, here is the tool: Founder’s Equity Tool

The best part about the tool is that it allows the user to account for the different critical components of the business by allocating a  value to each component (see the first part in the table below).  The next piece of the tool weighs each component through multiple considerations applied to each person’s involvement to ultimately come up with a value that should be representative of each person’s equity.  This prevents the founder who came up with the “original idea” or the developer who wrote a major piece of the code from trying to take the lion’s share of the equity.  While I don’t totally agree with the categories provided in the tool,  it’s an alternative with a logical approach.  If you don’t like the default categories you can always just come up with your own.  Enjoy!