Evaluation and allocation of shares

[pady]

Hi.

I am in process of registering a company. This will be a software web company. I already have worked for 6 months on the product. We plan to have a decent prototype/product this summer. Then I want to take it to angel investors/VCs. Now I want to get help - and there are 2 volunteers. I want to allocate them shares with some vesting schedule. So I have a two-fold question:

1. How do I evaluate my company ? How do I figure out what is the total outstanding shares for the company ?

2. How many shares should I allocate to the people helping me and what is the vesting schedule ? To give a background on the people helping me, it is 2 guys. One of them has a lot of experience and can start helping out immediately. The other guy wants to help but will not be of help immediately - mainly documentation, testing etc. I want to allocate shares based on performance and goals with some vesting schedule.

Where do I start ? I am not a business/accountant guy, just a techie.

Thx

-- pady

[akula]

pady, questions 1 and 2 have been covered here:
site:www.youngentrepreneur.com allocating shares - Google Search

1. you evaluate by putting a premoney valuation on your shop. the number of outstanding shares is then an arbitrary decision.

2. vesting schedules have "best practices" and that's what you use to work out your cliff etc..

so that's where you start..you put a premoney val on your shop, you then put everybody in the company on employment contracts and convert the value of those contracts into shares (based on the premoney val)..then, you ration out the remaining equity which is still owned by the company, over time based on the performance of each individuals

do you need examples?

[pady]

Thx for the quick response. Examples would be awesome. I will check out the links.

Thx

--pady

[akula]

check out the links and then tell me if you need examples for how to implement your share register

[pady]

I checked out the links, learnt about cliff vesting, but I need help.

These are the parameters:

1. The ideas/design are mine.
2. I plan on spending roughly 20k of my money.
3. I have spent roughly 4 months on the product. It is 20% completed.
4. I have 2 part-time volunteers signed up to help me going forward.
5. I am buying them computers to use instead of their personal ones.
6. I expect them to put in 10-20 hours max per week.
7. One of them is "ready" to start contributing immediately.
8. Another will take a few months to get to speed.
9. My goal is to get 50% of the product done by June, 2008 and get it live.
10. I want to set their expectations wrt to shares before they start working.
11. I will be putting in atleast 20-30 hours per week.

Given all these parameters, I plan on allocating some shares to them before they start contributing. I want to do a cliff vesting schedule, but I need to know what I should value my company currently and how many outstanding shares I should decide on and how many shares to allocate.

So if I say, my company/product is worth 50k, then should I have 2 million shares ( worth 2.5 cents each ), and then allocate 20k shares to each with a 4 year cliff vesting plan ( with some miuilestone based acceleration of the vesting ) ?

I am totally unsure of all these numbers above. I just have these parameters...

Any help appreciated.

Thx

-- pady