Hi there people of the startup world,
I’ve been considering and planning starting a company for quite a few years.
However, I don’t want any equity involved in this.
Essentially, it would be a business that’s run similar to a nonprofit focusing on personal finance, financial education, helping people with their budgets, product reviews etc etc. So being for the people, rather than for making money (while not being a charity). Revenue would come from monthly subscriptions and possibly product sales down the line.
As I’m looking to tread on some toes with this and shake up some industries, I’m not interested in raising VC money, shareholders, or ever selling this business as I’m of the strong belief that this would introduce biases and self interests, which is exactly what I’m looking to avoid.
Any ideas on how this could be made attractive to co-founders (unless I find someone who is also passionate about this) without giving equity that would be meaningless in the first place?
I’m considering business wide bonuses based on business performance on a set % of profit. This could obviously be tied to role and seniority, or if possible an internal employee share scheme, in which case internal equity could be possible (pending legality and implications).
Any feedback or ideas are really appreciated! Thanks a lot
Manager managed LLC with you as sole manager. Co-founders/employees receive profits interest.
Sounds like you basically want to run a co-op. That can work for some kind of businesses, but I hope you have the funds to build and launch the product out of pocket or have rich friends willing to donate money for free because they believe in your cause.
Am looking to go the “bootstrapped MVP” Route to begin with + crowdfunding and grants where available. I do have access to some money and a lot of connections, both in technical and business fields to get advice/feedback and some work done.
And I’d prefer not to go begging to people with nothing in return, so am not looking for rich friends to fund me (though I have been offered to borrow money) 😅
Thanks for the feedback!
The structure you’re looking for is closer to a cooperative than a nonprofit. These do have equity, but they don’t have outside shareholders - instead, the company is owned entirely by its employees and/or customers. Financial services companies with similar structures include credit unions, mutual insurance companies, and Vanguard.
The main unique challenge faced by this type of organization is its limited access to capital. It’s hard to raise enough money to build a product that can generate revenue without offering the potential for any kind of return to your investors. (Yes, in principle you can raise debt, but in practice that’s generally not viable pre-revenue, save for de facto equity instruments like convertible notes.) Many categories of financial services firms have relatively high fixed regulatory and compliance costs, so if you’re trying to bootstrap, finding a way to generate revenue without falling into those categories will help.
Equity means decision making
If no-one has equity then you have it all making you the only member of the company board.
If you have all the final words as it’s your business, then no one is your co-founder, they are all employees.
It’s really important to decide who gets voting rights and how much. Not for good times but when disagreements appears when there are two diverging opinions who gets to vote. If you decide to sell or stop [eg. you die or a personal disaster with wife+kids dying in a crash], people with equity are protected legally, you can’t just remove their livelyhood because you decided so even if you had unforseen disasters.
Once you settled the voting rights you have a new problem, fresh companies often run with negative cashflow and unpaid work for extended periods of time.
Meaning that initial members of your team will invest personal money and unpaid work into the business, you’ll need a way to accomodate for that because if you put 10-50k€ into a business and work it from the ground up, you won’t be happy that a newcomer slacker gets exactly the same as you and a salary from day 1.
If early members aren’t advantaged then most people will wait until it “starts having traction” before joining your project. You’ll be alone for years and newcomers at that point will just be employees, you won’t have any actual co-founders, you might call them that, they might call themselves that, but they won’t be.
These don’t refer to a particular structure but issues that you might naively do if you don’t account for actual reasons why equity are important in a business not matter the business model.
Equity = Risk
If you’re assuming all the risk, then you don’t have to share equity. Simple as that. Pay everyone a fair market salary, maybe put a bonus program in place, etc.
If you want to share the risk by not paying full fair market compensation you will have to share the equity too. It would not be fair to ask someone to share the risk but limit their rewards. Even if you could get them to agree to some kind of non-equity option it wouldn’t be fair. Agreeing to something doesn’t mean it’s fair.
Check out the Slicing Pie equity model at www.slicingpie.com. It will set you free!