Attributing value to a shareholders contributions

I’ve been working with this founder for some time, so it was no surprise that the founder had finally had enough of the cofounder, the last straw was the cofounder missing a shareholder meeting to discuss the financial challenges of the business to go skiing.

The problem was the cofounder was already fully vested on a large chunk of equity, and now the issue was around how to claw-back some of that equity to redistribute to future cofounders who might be more active in their contributions. Ideally it wouldn’t have gotten to this messy late stage, but as it was the challenge was to figure out what the value of the cofounders future contributions would be. Despite this being done after the fact, you can apply the same approach preemptively to prevent yourself from falling into the same sticky situation. 

Ultimately with this cofounder the solution was to look at the list of tasks that the cofounder would contribute, itemising the time commitment and accounting for any specialist skills or other factors. We then assessed the cost of hiring someone to do the task, and the dollar value of the cofounders time, allowing us to assign a dollar value to the hours on that task. Once this was done over the entire list of tasks, we have a dollar value to the contributions of the cofounder, which also presented us with the opportunity cost of hiring someone to do the work. Adding a bonus for historic contributions the dollar value was then factored into the valuation of the company to determine the reasonable share % based on the the valuation of the business at the time. 

Naturally the continuation of the story is in the negotiation from the cofounder on if this was at the correct value, but as far as a process this was one that was fair, logical and transparent. 

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