Forums: Discussions for entrepreneurs and small business.

BrandAlchmey,

You apparently have not taken dilution into account due to subsequent rounds of funding, seed round, series A, series B, etc. For every subsequent round of funding, the company gets a higher valuation and the possibility of previous shares getting diluted, so it isn`t a straight calculation like you have laid out, so a 5% initial equity granted to someone could turn into 0.001% when it is all said and done after the final round of funding.

And by the way, your tone has been condescending from the very first post, so I suggest that you check your manners at the door and stop calling everyone stupid because it is rude. I am sure your mother has taught you better manners.

Bob

Bob,

You misspelled BrandAlchemy.

No, I left dilution out b/c I didn`t think that was the issue. How many two-person firms have even heard of dilution? Your original idea was not a good one. You consult on growth equity, right? Scary.

Look, most of us here have shown your original idea to not be a good one.

As for tone, bad advice gets reactions. Deal with it.

As for my mother, she couldn`t be prouder. Same with Donny Deutsch`s mom, Chris Matthew`s mom, Nancy Grace`s mom, etc. We all have strong opinions, as do most entrepreneurs. We deal in facts with equity providers. Tone matters a lot with clients and in lots of other cases. Bad advice givers get shown the door. I didn`t check my tone there because I didn`t you to trip over it on the way out with your BAD IDEA.

Cheers.

Bob,

I agree that dilution is part of the equation but as a general rule of thumb with initial partners if you give someone 10% you give them 10%.  It is only in later stages that you issue series b,c stock to lower grade employees.

BrandAlchemy`s and others logic, who have participated, does hold true.

I agree however with Bob that there is no need to be rude and condescending when addressing other SUN members.   Although we may not always be right in our statements this is the place to make mistakes and for learning.  So if we are to continue with the great open culture we`ve established it would be best to change your tone.

There is a correct and incorrect way to firmly show someone the error of their ways without sounding like a jerk.  Just because the list of people you named are notorious doesn`t make them right.

Iggy button is such a wonderful thing, brandyalchemy, oops i misspelled it again, silly me.

Anyway, moving on to better things...

Letutor,
In my case, the founder started and funded the company and I was brought on as the first architect / developer but not as a founder / partner. If I had started with him on day one with equal contribution (time, cash, idea, etc), then yes I would expect to be a partner but that wasn`t the case.

With high-tech startups, no one can guarantee that an initial x% founder equity share can stay that way through all the rounds of funding. In fact, many founder CEO gets only about 4% of the equity comes IPO time, Google and other noted success are the exception, not the rule.

I agree this probably doesn`t apply to the original poster`s question since he is asking how to cover a 2-3 month cashflow gap. I don`t know his growth plans though but software consulting is a huge business, look at Wipro, IBM, HP, etc. I would say that if he is considering giving equity, it wouldn`t be granted as partner`s equity since he already has an established business, paying customer, and has already taken the bulk of the upfront risk.

Bob

When I started my first ad-agency, years ago, my contract stipulated that
my first three months commissions were paid in advanced. Now, I do not
start a project without an advance. I consider that a show of good faith on
the part of my client. My show of good faith is giving them profitable
ideas at my initial interview. By doing so I am showing them that I trust
that they will not use my ideas without compensation. if they do and they
cheat, I have one idea from a wellspring which they will never see again.
If what you have has any value, you must treat it like a treasure. Time is
money.
Professor Emeritus Pete Bagnolo

A second idea is to hire only independent contractors at the outset of
your business, and be certain that your client pays you in a timely fashion
by writing heavy penalties for tardy payments into your contracts. In that
way you will be paid before the billing for your contractors comes due.

But first and foremost it is always a good idea to have several months
cash available BEFORE starting your business. It is not a good idea to
begin a business with such a slim margin between success and
bankruptcy. It is better to hold off until you have sufficient finacial
support of your own funds. Although it may seem that a chance will never
come again to gain a client so soon, clients, if your work is good, will be
plentiful, so don`t leap into a bad situation from the getgo.

Contact me:

bfleming98 at gmail.com

- Bryan

 

 

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Bryan C. Fleming

http://www.BryanCFleming.com

Seriously tone it down - this is a great learning environment and we`re all at different stages of the game. There`s no value - to anyone - in being condescending and aggressive.

IMO, Starpointe`s idea is right on - negotiate with your client to find something that`s comfortable for you to take on more help. They`re demanding it so there`s obviously a need on their end.

What are some other creative ways that SuN members have done to bring help through the door?



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Dan Pickett
Principal
Enlight Solutions, Inc.

www.enlightsolutions.com
www.twitter.com/dpickett

As a small business I require a 50% deposit to be prepaid before the start of a project and retainers to be paid in full in advance. As with any small business or start-up we are all ready working on a tight budget and then not to receive any type
of payment only puts the success of our business at risk.  Would your customer be able to work how he is asking you to work?  I bet not....

Just a thought - Good luck to you



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All the best,
Julie Barnes
Certified Virtual Author`s Assistant

Let`s Coordinate, LLC
866-880-8511 ~ Toll Free
253-541-3737 ~ Fax
julie@letscoordinate.com ~ Email
www.letscoordinate.com ~ Web

I`m just getting caught up on this post.  Interesting and colorfull reading.

There are some intersting ideas, and I have one simple one.  Don`t hire until your business can afford to hire.  Certainly, don`t hire simply because a client thinks it is time.  You know it`s time to hire when you begin to have to make exceptional effort to meet the demands of your business - or when service feels like it is slipping. When you add employees, typically you add them at an entry level and try to give yourself relief from the smaller stuff (data entry, billing, filing, answering phones, ect..) so that you have more time to work on the bigger stuff (service and deliverables).  Perhaps adding part time and inexpensive help will get you where you need to be - and then monitor some more.

Using 1099 subcontract help is good too if you need more expensive talent and don`t want to pay for services until you know you will be paid for services.  Just be careful.  You can call them what you want, but the IRS and other regulatory agencies have a litmus test for whether someone is a subcontractor or not.  Subcontractors are not "hired" they are "engaged".  You do not give them "payroll" checks, but they supply invoices and you remit payment.  You can not provide them any tools to do their work and or direct direction on how to perform their work. You really have to be careful, and most people aren`t. 

Say you have a subcontractor you have used regularly for the past year working on a particular client or two.  Then, you loose that client so you no longer use the subcontractor.  The subcontactor applies for unemployment benefits (you can`t stop them).  When the case is reviewed, depending on how the subcontractor was dealt with during the past year, it could be determined that the subcontractor was "treated as an employee" and you/the company could have to pay the benefits along with a variety of other fines and potentially back taxes  It isn`t pretty - so be careful.  Make sure you understand the rules of engagment in your state and with the IRS.

Finally,  no matter who you hire - subcontract or direct - make sure you know who you are hiring.  That`s my little plug for my business.  Trust but verify. 40% of all applications contain lies or omit important information.  Where did they work before? What did they do? When did they do it? Do they REALLY have that degree?  Also, don`t hire a dirt bag.  Do the criminal background check.  Many small companies have lost everything simply by skipping the due dilligence up front.

 

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Linda Case Night Hawk Security Uncovering The Past to Secure The Future