Sharing the Success

October 23, 2017

Over the years I have been coaching a number of information technology startups emerging from hackathons. A common trait of such startups is the crew volatility. People join for the hackathon and crew members frequently leave after that, forcing the startup to look for co-founders.

This article demonstrates a simple model of sharing the success, suitable during the period of crew volatility and “no money yet”.

A common characteristic of this period is that work should be done in order for the startup begin generating a revenue from customers or to convince investors, but the original founders are not entirely sure about accepting additional shareholders.

This model allows both young as well as experienced professionals, to participate in the work, knowing that they will participate in the potential success as well.

The Problem

When working w/ startups, the question “how does one participate” pops up — sooner, rather than later. And, unsurprisingly, the word “shares” pops up in the conversation as well — also sooner, rather than later.

In the early phase of a startup “shares” is a hot topic. The original founders are still in the high hormone phase of their love relationship with the idea. And new arrivals are faced with the challenge to go through quite a rite in order to join the club as equals.

These dilemmas frequently lead to a blockage that can be easily resolved through a simple model.

The Solution

Instead of jumping at “shares” right away, the conversation can be about sharing the success.

A simple model to do this is by agreeing a role and a price for each actor and then simply writing down the time worked.

The price can be the usual price for the actor w/ a risk premium on top.

For example, if a developer would normally charge €75/hour, the invested time can be considered at €100 per hour, adding a 1/3 of a risk premium.

This way when money comes, everybody gets paid.

It should be made clear that this approach is an investment approach from the point of view of the participating actor and contains risk of losing some or all of the invested time. One should carefully consider one’s readiness to enter such a relationship and the extent to which one is ready to go.

A proper paperwork should be considered, making sure each actor is paid for the time worked regardless of when the money comes in — sooner or later, and even after the actor has long left the venture.

Updated 2017-11-06

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