Equity, Cash, and the Startup Ride

Equity, Cash and Startup Role - Ockham Technology Case

Jim Triandiflou was on one hell of a journey.  He started a sales automation and marketing tech company called Ockham Technologies at the height of the Y2K tech bubble.  Joined by one part-time co-founder and one "idea" co-founder, the team found some initial success after sourcing IBM as a key client.  In this case, we studied challenges at Ockham including business planning, finding a founding team, scaling through partnerships, and financing.  This blog post specifically focuses on the equity terms on the founding team at Ockham, particularly because Ockham had three very different co-founders.

Initially, Jim, Ken, and Mike were going to raise $150,000 by each co-founder pitching in $50,000.  Jim was the sales/growth guy, Ken was the idea/product guy, and Mike was the sales management expert.  Fair share to each receive ⅓ equity, right?  Well, turns out Ken could only put in 30k, Mike put in 45k, and Jim put in 75k.  But Jim was going to carry the weight - he invested the most capital and  was going to do the startup full-time.  As it turns out, Jim received 50%, Ken received 20%, and Mike received 30%.  

These terms matter because there’s mixed literature and thinking about founder equity.  Sure, most employees who join have sweat equity and low salary.  Investors will have preferred stock for the company.  But Jim received the bad bargain from the beginning.  He took the risk, managed the growth, and contributed the most for launch, but Mike and Ken got a great deal if the company grew.  

As Brandon and I think about starting Cash on the House, we each need to determine our risk, value-add to the product and company, and capital available for investment.  As the company grows, more players want pieces of the pie.  Because who knows, five years from now, neither one of us want to spend our days dealing with terms when we should be focusing on scale.