For some reason, over the past three weeks I bumped into three different entrepreneurs who put their equity into a fortress, 100K feet underground, with 16 guards attached to an atomic bomb. If you read the previous sentence and thought that’s a reasonable precaution to save the company’s identity and keep control, I’m glad you’re reading this post.
Just a quick reality check: you can keep all the company’s equity to yourself, but you’ll have zero progress and revenues. Learn how to give – this lesson can affect not only your start-up journey but also your relationships with other people and many other aspects of your life. The most important lesson I learned from the start-up journey is to share – ideas, equity and feelings.
You are one, two (or even five) founders who thought of a great idea and are willing to execute to win. The most fundamental core engine of every start-up is the team (I don’t need to preach that, I’m sure you’ve heard it from other people). The idea will be changed X times anyway, but the team is the key ingredient of converting any idea into a real product. When you’re at the beginning of your start-up journey, your most important resource is great human beings.
Do you really want someone great to join your company only because of a huge salary and benefits? NO! Actually, you probably don’t have the money anyway; you want him to join the company because he is connected to you and your vision – and is eager to build that vision. So my first point is that great human beings are worth the equity: they’re the best investment you can make.
Second, you have great tools to help control the equity you’re giving; one example is vesting. You’ve got a great guy who is willing to join your start-up for 5% equity, and vesting allows you to divide that 5% over a period of time (for example three years); as long as he is part of the company he’ll get 0.13% of the company’s equity each month – is your paranoia level still high? Of course there are many legal tools you can use; in the near future I’ll have a more detailed post about legal tools in the start-up world.
Third, equity is great tool that can help you construct the company’s advisory board effectively and bring the expertise you don’t have within your team. Members of the advisory board often invest in the company and pull the right strings to help generate business leads.
Bottom line: you can use equity to attract the missing puzzle pieces of expertise to your company, get industry experts on board to help you grow your business, and (most importantly) get attached to and involved with your start-up. It doesn’t matter how many times I repeat that mantra, you’ll have to go through the start-up journey yourself to learn the lesson of sharing.