Forums: Discussions for entrepreneurs and small business.

Hello all,

We are in the process of setting up a new business to market patented
spinal implants.

The team who originated the patent is made of 3 persons, among which
the Orthopedics Surgeon, who did most of the work. The other 2 persons
have the following profile:
- One is the CEO of a high precision manufacturing shop. This is a distant
but somewhat related field. At least he has tons of contacts in the
manufacturing field, some of them in the medical manufacturing field
(quite an asset, these are hard to come by).
- The second one is some sort of an unemployed technical (non-
engineer) state employee with hardly any skill other than being
reasonably good at Solidworks (CAD System). His hopes would be that he
would get an easy job at some point.

The Surgeon and the CEO initially partnered together, but the CEO
requested to bring in the 3rd guy, who has done all the CAD work. While
he was paid doing so, he also got a 25% cut on the patent (from the
original CEO share, since the Surgeon was not interested in getting him
onboard).

Now we are moving to the next phase, which is to commercialize the
product. While the patent development was carried out as an informal
agreement between all 3 parties (and without me), the commercialization
requires to be properly setup to accept orders and process them, and also
to be compliant with the required international standards.

While I have no direct experience in marketing medical devices, I have 5+
year sales and marketing experience in high-tech international
equipment & sales (USA, Europe and Asia), initiated by a strong initial
technical training (Ph.D., M.Sc. and Engineering Diploma) in CAD and
Mechanical Engineering.

To setup the business, I will most likely to relocate to a tax favorable
country (Switzerland) and run from there.

My question is as follows: I have no possibility to bring in capital (startup
costs estimated at 200-250 kEuros), but I am requesting to be issued a
share ownership of the company since I will be the one essentially
running it from day 1 (the others will keep their day jobs). This is an
absolute prerequesite for me, I have other opportunities that I can follow
which would pay better.

The shares would be of course be matched up with performance goals.

Right now, I am gearing for a 20% equity, but I am not sure how to
orchestrate this... E.g. should the the shares be set aside from the get go
(everybody else gets 80%, 20% are set aside for `Management
Compensation`)?

Should I request those shares from the get go - at least a 5% sign-on
bonus (relocation there will easily cost me 10 kEuros... on my dime).

What I am thinking is the following:

- 5% sign-on
- 5% on being able to get the proper ISO standard for commercialization
of medical devices (ISO 13485) within 6-9 months from inception
- 2.5% on market introduction at Medica 2007 (November trade show)
- 2.5% on being able to effectively close 500 sales of said implant within
the first year
- 5% on meeting the target for the second year (e.g. turn a profit)

Of course, all the shares could vest a number of years from inception (to
ensure that I would stay on board).

Is this realistic? Where should this fit - in my work contract? I am a little
uneasy, because I am - in all likelihood - the only one with the most
managerial/startup experience. All the other guys pretty much have none
or have grown their business without this `startup` mindset.

Keep in mind that I am not greedy - yet, I want to be rewarded for my
efforts and for the risks that I will take.

Any inputs or links on similar topics would be very helpful.

Have you already worked out other elements of your compensation, or will that depend upon your ownership structure?  Personally, I think you`re at the low end of your ownership requirements (unless there is other compensation that makes up for it).

This would all have to be formalized within both the shareholders agreement, as well as your employment contract with the business.


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My salary requirements are inline with what I would get with my next job
(80 kEuros), minus the yearly bonus (20 kEuros) which will initially be
replaced by the attribution of the equity when targets are reached. I can
always arrange to have a bonus back in the picture once we get past the
2nd year, but I feel this could be a little too early to discuss it. I am still
pondering for Company car, but I think that relocation expenses are out
of the pictures. Both my current job, and the next job I lined up provided
both.

I am personaly very much interested in being able to pilot this whole
thing through - meaning the experience itself - is a very valuable asset
for me.

Ideally, the Business should grow to the point where we would be able to
design the future generation implants, so there will be some serious
recruiting involved at some point and develop the ability to master the
design process to accelerate the rate of patent application (which is
essentially dependent on the ability of the surgeon to free himself up and
do patent research).