Example 5: The Foursome


Kedan, Layla, Michele, and Niko

Four schoolmates decide to participate in a business plan competition together. They all know each other, all like each other, and have worked well together in other school projects, but they have never before all worked together.

They meet to discuss ideas, and Layla, being highly perceptive, points out a problem that all four of them face as students. Kedan and Michele join in the conversation, with a few comments by Niko, as well. By the end of the day, they have an idea they all like.

Kedan and Layla go off to do market research. Michele works on a name and an initial product design. As the weeks go by and these pieces come together, Niko dives in to create a detailed financial plan for the business.

Michele takes lead on the “pitch” deck, and she and Layla present the plan at the contest pitch-off. The team comes in third, disappointed not to win, but still excited about the business.

Upon graduation, however, realities of life set in. Layla and Michele are eager to launch the business. Kedan is unwilling to quit his job, and Niko has a job offer at a big-name financial institution.

The team sits down to split up the equity for the business.

Kedan is adamant that the equity get split four ways. That there is no good way to measure how much effort each person put in to date. He’s still upset the team didn’t win and regrets not being part of the team that presented onstage.

Niko is happy with the third-place finish. He spent three all-nighters working on the financial plan and is satisfied that there is a real business to be had here; the judges just didn’t see it.

Layla and Michele are ready to go all out for this business, eighty to ninety hours per week, unpaid, for a year, if that’s what it takes. Neither of them, however, think all that effort is worth their time if, combined, they own only 50% of the company.

Over many arduous hours, Kedan finally agrees that the effort to date and the effort to be had are distinct. He and the others agree that 8% of the company should be set aside for effort to date and this portion be shared equally among the team. Given that effort is all done, these shares are not restricted.

With no role going forward, Kedan reluctantly but finally agrees to just that 2% share. In the discussion, Layla and Michele ask Niko to take a part-time role at the company, keeping the books and watching over the finances, promising up to four hours per week. He agrees to an additional 12% for this role, vested over four years.

Layla and Michele decide to split the remaining equity equally between them, letting Niko play the role as tiebreaker in future decisions when they can’t agree.




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