Jai's share

[kaustavdm]

What?

@dolftax wants to be part of Applait for the long run. He is apparently sold at the vision. Given that he is willing to take risk, it's justified that we allocate him some share of Applait. Also, he wants to have more "skin in the game".

Why not do it already?

Applait is a LLP. LLP's don't have any concept of shares. There is no ownership and management divide. You don't own shares in a LLP. You share a portion of profit or loss as a partner, and being a partner is the only way to be a co-owner of a LLP.

Adding partner is a lengthy legal process. Also, Applait's governance structure dictates that we cannot have odd numbered partners so that we can avoid reaching agreement through voting.

We cannot convert Applait to a private limited because our government does not allow that to happen. We will need to close the current LLP and incorporate a private limited. The legal cost for that would not be justified right away.

What's the way out?

For the foreseeable future, Applait's sole source of revenue is likely to be xplex, unless some very interesting turn of events occur. We will not incorporate xplex right now because it does not make financial sense to spend on yet another legal setup. Instead, we are likely to incorporate xplex as a private limited or similar corporate structure when xplex brings in enough revenue or has investment or both.

When we incorporate xplex, we can assign Jai common share out of xplex's stock pool, with the rest being shared between Applait, any employee stock options and investors.

If in the future we see it viable enough to convert Applait to a private limited or induct Jai as a partner in Applait, we will do that.

How much can we offer?

We don't have a solid figure and we cannot fathom the conditions that we shall have when we are in a situation to incorporate xplex. After an initial discussion between @debloper and I, we have put a ballpark amount of 10% of the common stock from founders' share.

Opening up this thread for discussion and future documentation. If needs arise, we may need to take further legal measures to ensure that the discussion here is attested.

The spirit behind this discussion is to put some numbers and move on to the interesting bits and take up opportunities as they arise.

[dolftax]

Couple of questions/concerns.

• I know I am going to add value to the company and I don't want negotiation conversations. I would propose for more. If you need a number, I would say 1/5
• Regarding Applait's involvement, let's discuss after we see money coming into xplex. In that case, making Applait pvt ltd shouldn't be a problem and my value addition to xplex would have been justified

[debloper]

• I understand where you're coming from on the 1/5 stake, but this is more complicated than it would be if I/you were to design the system. The common pool of stock makes this difference mainly, as well as some other stuff unforeseen yet (at least for me). If you want to mean you want equal share as me or Kaustav (or any of the existing 4 members) then that can be considered, but that value isn't 20% for any of us (so to say, the total share of us 5 together isn't gonna be 100% of xplex's share).
• This is a compartmentalization of concerns, and has nothing to do with money. Even if money wasn't a problem (and at a time when it's not), we'd still want to keep each of our sub-ventures separated from the core-venture. This allows giving the sub-venture-stakeholders the potential for unbound growth within the realm they contribute/value-add in (say, xplex for you) and not complicate the whole struct. It also doesn't block anyone from being part of multiple sub-ventures (including Applait itself) if/when it's feasible. If you think about it, you'd realize, it's a win-win.

[dolftax]

Alright. I understand the system is complicated. So, how are the shares being split? Is it going to be shared from 100% of the company and each liquidate some when investors put in money? (or) the pool is already defined and we take shares from the pool leaving the rest for investors?

Quoting Kaustav: "After an initial discussion between @debloper and I, we have put a ballpark amount of 10% of the common stock from founders' share."

• What's common stock from founder's share?
• What's the percentage of the above? (Is there one?)
• Not sure how the above ballpark number of 10% was calculated. Wrt to that number, I am negotiating to 20%

IANAL but trying to get these sorted out initially.

[kaustavdm]

What's common stock from founder's share?

Missing a comma can make so much difference. Apologies. I meant to write "10% of the common stock[,] from founder's share".

Let's say when we incorporate and issue shares for the first time, we issue 1000,000 shares at Rs. x face value. We would assign some shares to the initial members (Applait and you) and retain an options pool for future allocations. This options pool would include ESOP and an estimation of the max dilution we would want to do in first round of investment (if we have that). Shares from this initial offer is called "common stock" or "common share". When I said 10% of common stock, I meant that you would be allocated something like 100,000 shares from the initial offer.

What's the percentage of the above? (Is there one?)

Percentage is an eventual calculation. 10% of common stock from the initial offer can get reduced to less than 2% after a few rounds as valuation or number of stakeholders increase. What matters is how many shares you own and what is the value per share and whether they are still stock options or still vesting.

Not sure how the above ballpark number of 10% was calculated. Wrt to that number, I am negotiating to 20%

Treat these as projections. We do not know what any final deal or investment criteria will evolve to. The idea was roughly that Applait takes ~60%, you take 10% and we keep the rest for investors or subsequent employees of important roles.

We don't intend to raise multiple rounds but rather aim for exit. But, it is still too early to predict how exactly it will turn up and whether these figures would remain the same. There are many factors at play here that determine the exact percentage. See this article for a digestable run down of this calculation.

FWIW, your share compared to Applait would be 1/7th and not 1/10th as it appears. Note that one of the reasons for building xplex as Applait is to be able to roll forward majority of capital inflow/profit that comes through xplex, while your shares in xplex would not be under any such obligations. You are welcome to buy an island and a yacht if we have a big acquisition.

I'll leave it up to future discussions to solidify any number. Hope this clarifies your queries.

Addendum

One of the factors of taking an early stage risk is to have these uncertainties. Startups typically offer 3-5% to follow on members during development/pre-launch stage. I have been offered multiple "CTO" roles in other early stage startups for 0.5-4%. We don't want to go through that practise here, as I had explained to you previously, so we don't want to get that figure that low.

The reason is, we treat projects like xplex as stepping stones towards bigger goals. Your involvement at this stage definitely qualifies as an early stage risk for xplex, though xplex has been in the works for some time now, with part of the market identified and initial tests done; there are still many unknowns.

We have many other ambitious projects in the pipeline and we'd love to have you as part of them from the beginning. The equity share would depend on the involvement and scale of each of these projects. These are all experiments and as we get small successes, we bet bigger. This pluggable architecture would actually work in both of our favour. You can freely focus on one project or choose to exit, without bearing the risk of other projects. Though, without any success, zero times 100 is still zero.

At any point, you still represent Applait and have executive roles in the organization and its products. The only difference is that your stock benefits are allocated out of these products instead of the core org.

If you ask me, this puts more of your skin in the game, because it would now be your direct incentive to ensure commercial success of the products you have been assigned equity from.