Being able to fire up a dream team first implies to have good team foundations: the right co-founders, the proper shareholder agreement, a well accepted equity split. Then comes the recruitment of A+ people, and the key triggers of team motivation.

1. Firing up your dream team

2. Investor dilemma?
A team A idea
B idea B team

3. "What matters is not ideas, but the people
who have them. Good people can fix bad
ideas, but good ideas can't save bad people.”
Paul Graham, Y Combinator

4. Agenda
• 3 main co-founding models
• How to split equity The Foundation
• Shareholder Agreement
• Who do you want on your team Recruiting
• How do you get them
• How to reward them
• Key motivation triggers Managing
• Firing people on your team

5. CO-FOUNDING MODELS

6. 1 2 3+

7. 1 2 3+
• 80%+ of total equity
• Self starter / charismatic / strong ego
• Much more senior than other guys on the team
• Can pay for the initial team salaries

8. 1 2 3+
50 / 50 Majority / Minority
• Trust! Trust! Trust!
• Almost perfect complementarity / No overlap
• Not a stable situation
• Good Shareholder Agreement is critical

9. 1 2 3+
50 / 50 Majority / Minority
• Decision-making rules
• Deadlock management
• Transfer shares to remaining founder
• How to manage transition to CEO

10. 1 2 3+
50 / 50 Majority / Minority
• “Majority” has anteriority / seniority / expertise
• Decision-making simpler
• Need some protection clauses for “Minority”

11. 1 2 3+
• Getting tricky on splitting equity
• Decision-making may rely on moving “alliances”
• Sometimes unstable and manipulable
• A CEO needs to emerge soon from the team

12. Chances of success?
1 < 2 > 3+
No statistical evidence that it is true, but…

13. A bit of (old) academic research
• Heterogeneity of team members drive higher
long term performance
– Murray (1989)
• Long term performance driven by size of co-
founding team
– Teal & Hoffer (2003)
• But both creates more conflicts, lack of
trust, decreasing creativity
– Mosakowski (1998), Clarysse & Moray (2001)

14. Do you need co-founder(s)
• In general, you achieve more and faster with
co-founders, so look and keep looking for the
best entrepreneurial talents around you
• Seek perfect competency coverage with no or
very little overlap
• If enough money in your pockets: give less
equity by paying a salary (some co-founders
prefer cash)

15. References
• Disappointed by what I found on this.
• Key sentence everywhere: “you need to LOVE
your co-founder”…

16. HOW TO SPLIT
EQUITY AMONG
CO-FOUNDERS?

17. Potential variables
• Experience and credibility
• Core expertise
• Level of commitment
• Ability to bring in key people
• Relevant capabilities * importance to project
• Time already spent * market value
• Future role and responsibility
• Early money invested
• Who got the idea
• Who got started first

18. Example: The founders’ pie calculator
INPUT
OUTPUT
Source: Frank Demmler

19. Founder A Founder B

20. What does is come down to?
• Maximizing the size of the pie
• Fairness on a set of criteria and “what ifs”
• Creating trust mechanisms
• …

21. It is all about making a
deal
X% (1-X)%

22. References
• http://www.andrew.cmu.edu/user/fd0n/35%20Founders%27
%20Pie%20Calculator.htm
• http://thinkspace.com/how-to-divide-equity-to-startup-
founders-advisors-and-employees/
• http://foundrs.com/calculator/index.php
• http://www.ownyourventure.com/

23. SHAREHOLDER
AGREEMENT

24. You need solid
paperwork

25. Key shareholder agreement clauses
Vesting
Tag along
Drag along
Right of first refusal
Decision-making
Deadlock
NDA
IP Protection
Non-compete

26. Shareholder Agreement Clauses
Vesting The process by which
Tag along founders / co-
founders / employees
Drag along accrue non-forfeitable
Right of first refusal shares.
Decision-making
Deadlock Industry standard
NDA • 6-12 month cliff
IP Protection • 36-48 months
Non-compete

27. Shareholder Agreement Clauses
Vesting “Protect minority”
Tag along If a majority
Drag along shareholder sells his
Right of first refusal stake, then the
Decision-making minority shareholder
Deadlock has the right to join
NDA the transaction and
IP Protection sell his minority stake
in the company.
Non-compete

28. Shareholder Agreement Clauses
Vesting “Protect Majority”
Tag along A right that enables
Drag along a majority (industry
Right of first refusal standard 70-75%) to
Decision-making force a minority to
Deadlock
join in the sale of a
company on the
NDA same
IP Protection price, terms, and
Non-compete conditions.

29. Shareholder Agreement Clauses
Vesting The (founders) have
Tag along the right to purchase
Drag along shares before the
Right of first refusal offering is made
Decision-making available to other
Deadlock potential buyers.
NDA
IP Protection
Non-compete

30. Shareholder Agreement Clauses
Vesting Important decisions
Tag along need to have a
Drag along special approval
Right of first refusal process. Eg:
financing, sale, key
Decision-making
recruitments, …
Deadlock
NDA
Board role and
IP Protection
composition.
Non-compete

32. Shareholder Agreement Clauses
Vesting How to escape a
Tag along deadlock in case no
Drag along agreement is reached
among 50/50
Right of first refusal founders? How to
Decision-making divorce?
Deadlock
NDA • Put off meeting
IP Protection • Arbitration
Non-compete • Mexican shoot-out

33. References
• JFDI Shareholder Agreement:
http://mengwong.com/sg/capital/thin.pdf
• NVCA investor term
sheet:http://www.nvca.org/index.php?option=com_content&
view=article&id=108&Itemid=136
• Paul Graham (Y
Combinator):http://www.paulgraham.com/startupmistakes.ht
ml

34. IS IT TOO LATE?

35. Maybe it is possible to change
• Discuss based on rational arguments
• Offer to buy shares to pay for the past and
keep the future for yourself
• Some key favorable moments for a REWIND
– When all goes well and everyone agrees
– Financing round (investor pushes for a new
configuration)
• The longer you wait, the harder it is

36. Some ideas to increase your stake
• Buy back non vested shares instead of Company
• Increase your ownership if IRR > X% p.a.
• Take from Key People Pool or issue new stock if
your role increases (say you become CEO)
• Call option on investors’ shares at predefined
price
• Right of first refusal in case of share transfer
Have rights and the money to exercise them

37. WHO DO YOU WANT
ON YOUR TEAM?

38. Not this guy, do you?

39. The best
recruiter in the
world

45. ”You look for three qualities: integrity,
intelligence and energy. But the most
important is integrity, because if they
don't have that, the other two
qualities are going to kill you.”

47. So who?

48. Hire only A+ people

49. Why?
1. If you have A+ people, you may fail. If you don’t have A+
people, you will fail.
2. A+ people won’t joint you if your team is not A+. So start
being A+ yourself.
3. If you are afraid to lose control because of A+ people on
your team, then you are back to point 1.
4. It is a bit like in sports: if you train with athletes, you have
more chances to become and remain one: it motivates
you, you acquire the techniques faster by watching
others, you train harder.
5. You want to make sure that each new person on your team
will make a critical difference to your business.

50. My definition of A+
• High level of personal integrity
• Doers, Achievers, Solution-oriented
• The best experts with humble attitude (*)
• Accountable
• Speak up when there is a problem
• Love the product / vision (“infected people”)
• High level of resilience
*an expert who is not humble and has no listening attitude is useless

51. What are your criteria?

52. HOW DO YOU GET THE
A+ PEOPLE?

53. Create a competition
The best people are not afraid of it. In fact, they seek it.

54. You want to see…

55. …how they compare…

56. …to get only the best (*)
*most probably, not these guys

57. Define the Prize
• Job description
• Include the job challenge
• What is your Unique Value Proposition
• Best (required?) to include the compensation

58. Create visibility for the job
• Your Network
• Your employees networks
PUSH • Job boards are more than ok
• University placement offices
• …
• Informal meetups (ongoing)
PULL • Be a visible expert
• Inbound marketing

59. Example of recruitment process
• Screen CVs
• Quick interview over the phone
• Test competences (hard*)
• 3 interviews minimum (**) Sell, Sell, Sell
• Check references throughout
the process
• Discuss compensation
• Make a priced offer
*get to muscle rupture, A+ people prefer hard challenges
** use trusted external people if needed

60. Recruitment is a lot of work (*)
# candidates Time spent (hrs)
Communicate the job offer 5
Screen CVs 180 6
Quick phone interview 20 5
Test competences 10 15/3=5
3 interviews (45 minute each) 5 11
Check references 3 3
Sell and discuss compensation 1 2
Total hours 37
*not even talking about ongoing networking, inbound marketing…

62. Example of interview guide (*)
*quick and dirty, the point is you need one to rate candidates consistently

63. Examples of questions to references
• Context of collaboration
• Why should I recruit her/him?
• What drives her/his motivation?
• Can I trust this person?
• How can I help this person feel good?
• What are the 2-3 things she/he needs to work
on?

64. If there was only one question to ask
“If you were to launch a new company, would Mr.
Candidate be the first person you would take on
your team (and pay from your savings account)?”
“Why?”

65. Don’t make the offer till the very end
• You want your offer to be accepted, not
discussed nor refused
• So discuss before, it feels more comfortable
for you and the candidate
• An offer letter is just a formalization of a pre-
existing agreement

66. Some personal advice
• Take a well connected headhunter as a
Business Angel investor.
• Between 2 candidates, choose the one with
the best attitude, as competences turn out to
be less relevant over time.
• Recruiting is one of the key skills you want to
develop on your team.

67. HOW TO REWARD
EMPLOYEES?

68. Just to give it a try
-0 to -50% vs market rate at the beginning
Depends on development stage, resources,
cash / equity candidate profile, and your
Base value proposition.
Aim to reach market rate fast (in the end,
+ you don’t want to take the risk of losing
them)
Bonus Forget it at the beginning except if super well
defined and quantifiable goals.
+
Equity

69. Equity distribution for “employees”
• Employees ≠ Co-founders
• Count more in value, less in percentage terms
• Take from Key People Pool (12-20% post money)
Title % equity post Series A Value @ 10m USD post money in 000s
CEO 5-10% 500 – 1000
COO 2-5% 200 – 500
VP 1-2% 100 - 200
Director 0.4 – 1.25% 40 - 125
Lead Engineer 0.5 – 1.0% 50 - 100
Source for % equity: VentureHacks

70. From art to science (Fred Wilson)
• Cut employees in 4 brackets (except CEO)
– Officers: CMO, CRO, CTO, CPO, CFO… 0.50
– Key People 0.25
– Employees in key functions 0.10
– Employees in no key functions 0.05
• Multiply by salary to get equity value
– For a CMO earning 150k: 150 * 0.5 = 75k
• Calculate corresponding # shares
– 75 000 / company value (10m) * total # shares
outstanding (1m) = 7500, ie 0.75% of total equity
Source: Fred Wilson

71. Cont.
• Apply vesting scheme over 4 years
• Potential gains for employee
– 75k * Value multiplier over period (5-10?) –
exercise price (say 75k) = 300 – 600k

72. Some references
• VentureHacks: http://venturehacks.com/articles/option-pool-
shuffle
• Fred Wilson: http://www.avc.com/a_vc/2010/11/employee-
equity-how-much.html

73. TEAM MOTIVATION

77. Posters don’t work.

79. HR not so well either.

80. SHARED VISION

81. “If you want to build a ship, don’t
drum up the people to gather wood,
divide the work and give orders.
Instead, teach them to yearn for the
vast and endless sea.”
Antoine de Saint Exupéry

82. CULTURE

83. “The Culture is defined by who you
recruit, promote, and let go”
- Netflix presentation

84. ACHIEVEMENTS

85. What worked for me
• Setting challenging and agreed upon goals
• Progressively give more control to people
• Share the data, even the hard one
• Listen to the young guy and the silent person
• Recognize and reward the achievers
• 4-8 people sub-teams
• Have the tough discussions
• Have the team spend time on what it doesn’t
know yet

86. Call for half times to
review and celebrate.

87. References
• Motivation models:
http://www.slideshare.net/rmullenger/motivation-models
• Lance Laking, common sense on people
management:http://www.slideshare.net/webgoddesscathy/h
uman-capital-building-high-performance-teams-for-your-
startups-success
• Netflix HR: www.slideshare.net/reed2001/culture-1798664

89. Tanguy Lesselin
t.lesselin@cartouche.sg
+65 91 000 667