Re: [newtech-1] Partnership Question

From: Yaniv S.
Sent on: Saturday, February 2, 2013 6:32 PM
Ben,

There are many issues you need to consider here, in addition to the advice you already received.

To focus matters, consider the following: since you are foregoing a salary in favor of a profit sharing agreement, you are being forced to consider if/how/when there will be profit.  In essence, you are becoming an investor, and, just like any investor, you need to do your due diligence, and, unfortunately, there are no shortcuts here.  No matter how this is presented, you are taking on risk (no profit = nothing in your pocket).  So now you have to figure out if there is a market, and a need, and does the company have the right solution, and what are the adoption chances, and what are the costs to drive adoption and the sales cycle, is the team the right one to execute this idea, what are all the costs associated with running the business and how would  profit be determined, when would the company break even, when do distributions begin and conditions for same, etc., etc.  All these and more would affect when, how, how much and even if you will ever be paid.

Good luck!

Yaniv

On Sat, Feb 2, 2013 at 3:00 PM, Ben Reeves <[address removed]> wrote:
Hi Miles and Carrie,

Thanks so much for the advice. This is simultaneously a very exciting and somewhat overwhelming situation. It sounds like I will definitely need to have an attorney look at things. Is there anyone you can recommend? I would obviously want to try and keep attorney's fees to a minimum.

As for compensation, we had discussed some kind of profit sharing agreement starting out rather than some kind of straight salary. If I understand you correctly, forgoing a salary in favor of profit sharing should provide me with more leverage in asking for equity?

Thanks again! I really appreciate it.

Best,

Ben


On Sat, Feb 2, 2013 at 2:37 PM, Carrie <[address removed]> wrote:
Congrats on your offer!

Not really a big deal that's it's an LLC (your agreement will read "units" instead of "shares"). I would just make sure that the operating agreement doesn't make it difficult to convert to a C-corp because some investors will require that (assuming the company will need to raise at some point). 

Two quick answer to your questions: 

1  Yes, you should have an attorney review the documents (don't let them talk you into nitpicking things, but make sure there's nothing out of the norm in there and that you understand all the provisions). 

2. There's always room to negotiate. Just be prepared to offer something in return and to think creatively. For example, if you want more equity offer to take a little less salary off the bat or ask to talk about options tied to performance. I'm personally a huge fan of performance-based agreements because it's a way to show that you have skin in the game without putting up money (which aligns everyone's interests and is likely to endear you to the founders). 

I recommend talking to someone in a similar role to find out what fair terms would be. 

Sent from my iPad

On Feb 2, 2013, at 2:09 PM, "Ben Reeves" <[address removed]> wrote:

Hi Everyone,

I have just received an offer to join an online media company as their executive editor and an equity partner. However, I am new to how these arrangements work, and I was wondering if anyone could offer any advice on negotiating a partnership relationship. The company is an LLC, and there are currently two partners: a principle shareholder (and founder) and the CEO. I would be the third partner.

They aren't asking me to contribute any money at this time because they're doing a soft-launch of a new product which I will oversee, but there is a strong probability that my role in the company (and my financial stake) may grow in the next six months to a year.

Anyway, I would really appreciate any advice you might have for someone just starting out in the business world. Do I need to have an attorney review the agreement? How much negotiating room do I likely have? Are there any specific arrangements I should avoid?

Thanks so much!

Best,

Ben




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