{"componentChunkName":"component---src-templates-blog-post-ts","path":"/tips-and-tricks-how-to-compensate-a-new-team-member-in-equity/","result":{"data":{"site":{"siteMetadata":{"title":"Clausehound Blog","author":"Joshua Koudys"}},"markdownRemark":{"id":"ab21082d-d523-5439-b4d0-f269da26f4a0","excerpt":"Startup companies often struggle with the valuation calculation, and how to determine the number of shares to issue to a new team member. A good place to start…","html":"<p>Startup companies often struggle with the <strong>valuation calculation</strong>, and how to determine the <strong>number of shares to issue</strong> to a new team member.</p>\n<p>A good place to start when thinking about this are the Khan Academy’s Raising Money for a Startup, and Getting a seed round from a VC videos for an excellent and thorough discussion on how to value <strong>founder equity vs. new investment</strong>.  Where the investor is investing cash – think of the new cash as the “sweat equity” provided by your new team member.</p>\n<p>Suggested viewing:</p>\n<ol>\n<li><a href=\"https://www.khanacademy.org/science/core-finance/stock-and-bonds/venture-capital-and-capital-markets/v/raising-money-for-a-startup\" target=\"_blank\" rel=\"nofollow noopener\">https://www.khanacademy.org/science/core-finance/stock-and-bonds/venture-capital-and-capital-markets/v/raising-money-for-a-startup</a> (gets interesting around the 1 minute mark)</li>\n<li><a href=\"https://www.khanacademy.org/science/core-finance/stock-and-bonds/venture-capital-and-capital-markets/v/getting-a-seed-round-from-a-vc\" target=\"_blank\" rel=\"nofollow noopener\">https://www.khanacademy.org/science/core-finance/stock-and-bonds/venture-capital-and-capital-markets/v/getting-a-seed-round-from-a-vc</a>  (relevant to almost the 6-minute mark).</li>\n</ol>\n<p>Once you have had a chance to view the videos, consider that the principles of valuation of <strong>time vs. money</strong> can be extended to new “sweat” investors by adding additional boxes of value to the table, and issuing a corresponding number of shares to match.  Think of the sweat and cash in the company prior to adding on the new founder as the pre-money valuation, and the additional value added by the new investor as post-money valuation.</p>\n<p>You may wish to “drip” out the vesting of shares over time.  Several instruments can be used for compensating the new team member, including a consulting agreement or option agreement, or both, combined.</p>\n<p>Be sure to <strong>consult your accountant</strong> to discuss the form and value of new shares issued (vs. for example options), as there may be a <em>Canada Revenue Agency</em> revenue amount triggered, if this share issuance is treated as compensation or company earnings and not an investment.</p>\n<p><strong>For more information, check out these blog posts</strong>:</p>\n<ul>\n<li><a href=\"https://blog.clausehound.com/how-much-should-you-compensate-your-startup-company-board-of-advisorsdirectors/\" target=\"_blank\" rel=\"nofollow noopener\">How much should you compensate your startup company board of advisors/directors?</a></li>\n<li><a href=\"https://blog.clausehound.com/when-forming-a-company-how-many-shares-should-be-issued-and-at-what-price/\" target=\"_blank\" rel=\"nofollow noopener\">When forming a company, how many shares should be issued, and at what price?</a></li>\n</ul>","frontmatter":{"title":"Tips and Tricks: How to Compensate a New Team Member in Equity","date":"December 27, 2015","description":"Startup companies often struggle with the valuation calculation, and how to determine the number of shares to issue to a new team member.","author":{"id":"rajah@cobaltcounsel.com","first":"Rajah","last":"Lehal","bio":"Rajah Lehal is Founder and CEO of Clausehound.com.  Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.","image":{"childImageSharp":{"fluid":{"base64":"data:image/jpeg;base64,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","aspectRatio":1,"src":"/static/d7bbad08c257f3987a4a5710553e9e17/bdd4d/Rajah.jpg","srcSet":"/static/d7bbad08c257f3987a4a5710553e9e17/2b9ee/Rajah.jpg 80w,\n/static/d7bbad08c257f3987a4a5710553e9e17/e5d64/Rajah.jpg 160w,\n/static/d7bbad08c257f3987a4a5710553e9e17/bdd4d/Rajah.jpg 320w,\n/static/d7bbad08c257f3987a4a5710553e9e17/6e63d/Rajah.jpg 400w","sizes":"(max-width: 320px) 100vw, 320px"}}}},"tags":["ESOP","Long Form","Start-up","Valuation of Shares","Human Resources","Rajah","Articles of Incorporation","All Jurisdictions"]}}},"pageContext":{"slug":"/tips-and-tricks-how-to-compensate-a-new-team-member-in-equity/","previous":{"fields":{"slug":"/your-best-interest-interest-rates/"},"frontmatter":{"title":"Your Best ‘Interest’ - Interest Rates","tags":["Commercial Activities","Consumer Protection"],"author":{"id":"info@clausehound.com","first":"","last":null}}},"next":{"fields":{"slug":"/protection-of-confidential-information/"},"frontmatter":{"title":"Protection of Confidential Information","tags":["NDA","Handling of Confidential Information","Safeguarding Requirements","Long Form","Technology","Commercial Activities","Rajah"],"author":{"id":"rajah@cobaltcounsel.com","first":"Rajah","last":"Lehal"}}}}}}