Comment by tptacek
I agree with Joel Spolsky that nobody should get shares for personal capital contributions (at least, not unless they're investing in a round). If you want to be fastidious, set up IOUs.
I agree with Joel Spolsky that nobody should get shares for personal capital contributions (at least, not unless they're investing in a round). If you want to be fastidious, set up IOUs.
Actually they do it all the time - asking to ‘top up’ employee stock option pools before a round is closed, keeping exec salaries low, or cutting them when the company is running low on money - these are all forms of founder capital contribution that are not compensated. I’m not saying they’re not market, or even that they’re a bad idea. But, consider an exec who could make $300k base plus ISOs at a public company going from $170k to $100k for lean times — what would raising that 70k cost the company in stock? A fully level capital stock playing field would see the 70k investment from the founder independently priced in a fair round and deliver preferred stock. I’m unaware of this ever happening in my last 25 years of startup and venture experience.
I'm 100% the opposite. It's wrong for one group to expect preferred stock for their capital contributions, while they ask the usually less experienced CEO to make a tacit capital contribution (lower than market salary) and then on top to ask them to put cash in that won't be given the same terms -- nah.
Now, if the founder capital went in pre-round, and a round was raised, I'm with you -- that's fine - and between the founders at that point; they got paid in equity valuation. But otherwise; nope.