How Much Equity Should You Give To Your Partners?
To another episode of Marketing School I'm Eric Su and I'm Neil, Patel and today we're gonNA. Talk about how much equity you should give to your partners and I. Think Neil this maybe a good way for us to start this off after we kind of talk about a little bit is to share stories. Yeah, so equity guys just to recap. What percent of the company should you be giving to potential partners and I think the high level answer to that would be depends, but I think it'd be helpful for you guys to get an idea of how Neil I have thought about this historically and how we've done things, so neil you WANNA start. Yes so I'm a big believer and basing on value if you think someone is. Doing a lot of work, carrying majority of the way, or they should get majority of a are doing very little work. She get much lower of equity if they're doing half the work and pulling hathaway fighting half value than give them fifty percent, the reason I would vary it a law and don't always look at it as you deserve the majority or you deserve, the least amount is if someone else is doing the majority of the working. They're carrying the company and you do very little, but you own a big chunk or more than half eventually they're not going to be. Happiness can create friction. And then eventually the business can end up going to zero or does not work out on the flip side. If you own majority an were, you can also think about the opposite way as well right so in essence well I've learned and I've done so many different business partnerships says it has to be equal based on the value and effort that each partner is providing, and that could be one partners, providing more money or do. Do More work or they're bringing more deals are revenue. However, you want to slice dice. Yeah, and one way I think people might be thinking. Hey, like what if I want this to be an exact science? I think it's tough to make an exact science, but if you want to do it, there actually is a way to make it a lot more mathematical. There's a website I, think it's called slicing pie so slicing it. Slicing Piedras actually a book on do and basically you actually have to record how many hours you're putting in for the year and I think at the end of the year it calculates equity you got now. That is much more mathematic, but to Neal's point. Let's say somebody joins a company and they want equi now I think it's good to entertain the conversation, but really it's basically a negotiation. You're having so okay. You want equity in the company. How much do you want? Okay? You want twenty percent. Okay? Why do you want twenty percent? Okay, how? How much work have you put in so far? How much money are you going to put in now? If it's really zero zero, starting out I'm just joining because I'm talented. That's hard to compute because if the companies are doing well, you've been doing it for five years. You put in the sweat equity and you put in the money already and this person just come in and say I want this. I think they're probably being unreasonable, but if they're being reasonable, then continued negotiation. I think you've gotTA. Make all parties. Happy on that front, so I. I think with partnerships in the past. We can just talk about our partnership here. Neil like fifty fifty right down the line, so that's true so in general. What do you do with all your partnerships? Because you have multiple partnerships, some are less than fifty fifty summer more than fifty fifty. How do view it? Yeah, so let's look at the software side of things so originally it was two co founders that this is for click flow so I starting out with sixty percent, and a he started out with forty percent of the company and the reason. Reason for that was because I was using my social capital, so I was getting people to put in money for the company secondly Ozzy Mike Capital as well third was using my social capital to get US customers at the same time, and so he thought that was more valuable, and he also wanted me to handle the recruiting financing division all that kind of stuff, and he was going to handle strictly to technical side of things, so that's how we split it that way and we agreed, and it was fair to really know fights on that front. Have you ever had business partnerships, not out and people are fighting and arguing yeah. I mean Oh single rain. Were you were a partner before two? Yeah years ago. Why didn't it work? Single Green didn't work out I guess or the Partnership Workout Right? There's many reasons why the company didn't work out, but why the partnerships not work out partial didn't work. This is my opinion. I think the level of work was not distributed. Some of the people that had equity were no longer putting in the work, and so that actually caused issues friction, because it was like I'm putting in this world and this person just kind of sitting on the size I. think there. There is kind of that going on, but at the same time the company wasn't doing that while anymore. Period because of all the algorithm updates that google was making so cash was coming in, so that led them more stress and people were just like. Forget it at this point is like the company's not really worth anything that was where I think it landed, and then there were five partners as myself a zoo and there were three other people, and that's what happened. Look, at the end of the day business partnerships are GonNa go to ups and downs, oil and a finding out is equity mainly becomes a problem when you're making money when you're not making money, no one really cares for some reason. Even when partners are all happy when money starts rolling in dozen people get greedy and picky and have issues, and that's why it's not structured fairly at the beginning, it creates issues wants money is trying to be made.