This weeks workshop was led by Peter K. Osborn Esq., a Colby almnus of the class of 2003. Peter is now senior associate at Wilmerhale, a leading law firm. As a practicing attorney, Peter represents the entrepreneurs behind start up companies of all ranges of industry and of all sizes. His representation of these companies means that he works with founders pre-incorporation to help them understand the best way to grow a successful company. For the most part the companies Peter represents are looking for fast (3-7 year) growth. Founder equity is just one of the many issues Peter deals with in his work.
As an entrepreneur, it is vital to understand founder equity concerns, as you need to know how you are going to split up your equity and the potential issues you will run into in the process. Having a knowledge of the benefits of being a stockholder, the process of issuing stock, and allocation and dilution concerns are all points Peter stressed at the workshop.
Stockholders have control because they can elect and remove members of the board. In comparison, option-holders don’t vote and there fore have no control until they become a stockholder. To issue stock first a board of directors must be named. This board of directors approves all of stock to founders. A fair market value must be created. Make sure you know and trust your stockholders! Remember, they can now vote in electing and removing members of the board.
Beware splitting equity 50/50! This leaves no majority, and can lead to confusion down the line. Someone needs to have even a slight majority. Plan in advance for what you’re going to be giving to new hires. Corporations should avoid thinking in percentages rather than share numbers; having a “smaller piece” of a “bigger pie” is a good thing!
Thank you so much to Peter for his time and for a very informative workshop!