Please help me split equity fairly
I have built a health tech product that doctors can use in hospitals to treat patients better. I have worked on this for the last 3 years (as a side project spending a minimum of 20 hours each week), and now the product is getting great reviews from various doctors. Now we need to publish a clinical trial showing the product's benefits; for this, I need help from a Clinical doctor.
There is a doctor who is excited to work on this and get the clinical trial published. This is a critical milestone, and I want to ensure this doctor is compensated through equity. One factor is that the doctor at this point doesn't see himself quitting "medicine" and working full-time on this startup, whereas I will be going full-time after this clinical trial is published.
How do I determine the right equity split for the doctor who could have the title of Chief Doctor?
And interestingly I have a similar dilemma on the sales side, there is a CEO of another health tech company who would like to join my startup as a co-founder and will be able to help us sell this product to various hospitals (this product is a complementary sale to his product). But given his commitment to his current company, he won't be going full-time on the startup at this time. This role will be more of "Acting Head of Sales", and I am thinking of compensating more through commissions but there is also an equity component expectation.
Please advise how I can fairly split the equity to maximize motivation toward the startup's long-term success by both the Chief Doctor and the "Acting Head of Sales".
What about agreeing with a specific equity split tied to clearly measurable targets within a defined target range? Such contracts ensure that hopefully the targets will be achieved or at least you will not give away any equity without receiving a measurable outcome.
Regarding the sales person, I would use them with a commission. Don't be frugal here, you need to earn money, but since you are at the beginning of your "journey", you should pay a good commission. This will make it easier for you to get new clients yourself and give you a good market starting point.
Again, how you define the contract is very important.
Another tip: make sure you put everything in writing and make the contracts clear so that there are no subsequent discussions. I speak from experience and have been able to prevent many things from happening. You don't have to hire an expensive lawyer for this. Prepare the contracts yourself, talk it over, if you don't know what you're talking about, research what it takes and then take the paper to a lawyer to have it checked if necessary.
@move2000 thanks. Yes its clear from the advice here that Sales I will do a commission based maybe like 20%-25% on every $ for the first year.
For Doctor, in order to hit "clinical trial" target would set some "stock option" goal on that target. Still thinking through the details.
I'd say find an experienced startup lawyer and discuss your situation. Maybe the solution is not to give equity, but stock options? Or maybe some sort of revenue or profit sharing model? I would be very hesitant to give out equity just like that.
The equity in startup changes value depending on the risk a co-founder takes to work on that particular idea at that particular time.
You doing this for the last 3 years when it was just an idea without any traction can't compare to the risk of new co-founders joining in right now, especially if they are not leaving their comfort zones yet.
Whatever you do you must have well defined cliff and vesting period. Besides that I would strongly advise on adding additional clause in you founders agreement saying that for them to get any equity they must transfer to a full time position and stay there.
The example would be:
The example for sales guy:
Everything I've wrote is hypothetical, I'm just giving you examples of how these things work.
You would now need to try and calculate the value of your business. How much money it can make after trial is over multiplied with a proper multiplier for similar businesses. Then look at how much money would it cost for someone else to do their job. And then you can figure out the equity parts.
It's important to calculate post-money and post-trial valuation because they want to be in a comfort zone while the oceans are red.
Now my founder-to-founder advice. Equity is for founders not people with connections. I don't believe I would ever give equity to a sales guy, I did it once and everything went to s**t. Give them commission, give them big commission, give them option to buy-in at a right valuation, but don't just give them straight equity.
I sure hope I've helped you instead of confusing you. You should probably seek help in your startup community as well there's probably an attorney getting money from some grant that can help you with everything. Or maybe a founder that went through all of this, just find them on linkedin and ask for help.
Additional tip, when it comes to standing your ground. If you feel like sales guy is better in negotiating, listen to a book "Never split the difference" before negotiations. It's the best book there is for this.
Create a new email, go to audible, and do this in your spare time as soon as possible 😄
Lol yes
Ivan, Please accept my gratitude. This is super valuable advice. I am going to think this through tonight. I might have couple more questions I would like to brainstorm with you on, hope that's ok.
For sure, I'll be more than happy to help you.
I think this video can help you to decide..
https://www.youtube.com/watch?v=9NhEBVPlJs4
thanks will check it out.