Ask HN: Allocation of Company Stock

3 points by clearwind 5 years ago | 1 comment

Hi HN!

As a first-time startup founder I have a rosy picture of what I'd like to happen with my company stock, which I know is naive but also "feels right". I'm sure you must have seen other founders with similarly naive ideas, so I'd be grateful for your input.

Here's what I'd like to do:

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Allocate 1/16th of my shares to friends and family. 1/64th each to my parents for incubating me. 1/192th to each of 6 friends and siblings for business acumen or counsel.

Have an initial valuation of £192 million.

Intend to take investment by selling 1/16th of my remaining 15/16th shares at a time to the best fit investor at a time, without changing the valuation. So I could hypothetically sell 1/16th to Andreessen Horowitz for £1, and/or 1/16th to my 2nd cousin for £10 million. This assumes I have runway to take investment in good time (as PG says, when investors are chasing you, not the other way around).

No change to valuation, no intention to go public.

Hire employees with a fixed 1/192th each (while looking for the "right" hire, use contractors instead).

No intention to bring on a co-founder.

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What are your thoughts? Is this actual malpractice? Workable but inadvisable? Do you know a specific resource that I should use to learn this topic properly?

(I'm keen to hear the "why's" and counter-examples, not only "I can tell this is the least of your worries" :-)

Do you know of any other companies that have taken alternative/different approaches in the past?

Thanks!

fuzzfactor 5 years ago |

I think when you're worth 192 million to begin with you can afford to have a rosy outlook not imaginable by many other first-time founders.

It should be easy to grow exponentially from there until you reach the ceiling of your available opportunity. The only reason I could see for embracing outside investment would be to further accelerate the growth, plus pursue additional opportunities, and share the resulting wealth.

In all fairness your employees would all be shareholdrs no differently than your investors.

I would assume your employees will be paid decently in addition to their generous share of the company.

Otherwise your _employees_ will be needing some serious dividends to make ends meet or else their substantial ownership will not do things like feed a family along the way to a liquidity event.

Which is also a possible approach.

The world is your oyster when you've got 192 million, even if it was just in US currency.

Regardless, if you want to maintain certain control of no less than 51 percent of shares, you would be limiting the company to no more than 96 employees otherwise they will then own more than half by themselves. And you even less if there were outside investors, so it would have to be scaled judiciously depending on how you want to allocate the initial 192 million.

And of course each employee would have to be worth over 2 million to the company from start to finish or it would not be sustainable.

Also I think your parents should be entitled to a better deal than Andreessen Horowitz.

>Do you know of any other companies that have taken alternative/different approaches in the past?

Bernie Madoff founded a company which had an alternative approach, but it turned out to be not that much different than other rosy-picture practicioners who were always quite questionable.

There's a big difference between actually having aggregated wealth versus just paper that looks like it is so.