Equity Split Strategy Based on Equality among Partners - Case Study Example

Before the venture, the salaries of the partners were between $55,000 and $90,000. This means that everyone on the team was going to be receiving a raise. There was no reason to fight over which person deserved more money among the partners since everyone was going to be richer in terms of salary. The decision to split the equity equally was also the simplest way to arrange the partnership. My opinion is that the founding partners of NanoGene Technologies created a division of wealth fairly. In many instances when people are starting a business they fight too much over who deserves what even before the business venture starts to make money. The founding partners of NanoGene Technologies are all very satisfied with the arrangement. All partners were able to increase their total compensation in terms of salary and ownership in comparison with their prior jobs. The new venture will improve their quality of life because of the higher compensation and the control and self-satisfaction of working in a company that you founded.

B.
Some people might be perceived that NanoGene Technologies created a company introducing too many founding partners due to the fact the maximum amount of founding partners is typically three. This assumption is incorrect because if a larger group is satisfied splitting the money among more people it does not matter if there are more than three founding partners. The founding fathers of NanoGene Technologies are Tompkins, Mark Masterson, Ravi Rhoota, and Gary Garfield. The founding team is composed of four scientists. This was a noble idea, but it would have been much better to have a more diversified group of professionals in the founding team. The current dilemma associated with the hiring of Paige Miller would not exist if one of the members of the founding team had an MBA.

There is a huge difference between the founding members of a company and the early employees. The founding members of a company are the pioneers that had an idea which they develop into a product or service. The founders are the persons that made the original investment to start the business. Founders are also the ones that put in the original R&D time to develop a product. On many occasions, the founding teams invest hundreds or even thousands of hours without receiving a penny of compensation prior to starting the business. The early employees are the people that are hired to work for a company once the operation starts. In the NanoGene case study Paige Miller if hired would be one of the early employees. Other needs such as engineers or accountants could have been met by having a more diversified group of founding partners.
C.
Paige Miller is an experienced professional with expertise in the biotech industry. She is a proven winner and a person that can lead a business towards the path of success. She would be serving the role of VP of operations. Her salary demands are $175,000 and 3% of the equity. The first issue with her salary demands is that she would be making more money than the four founders of the company. Her salary would be superior to the salary of the CEO. Also, her equity demands would equal the equity currently held by the founding fathers. Despite the high salary demands that Paige is asking the reality of the marketplace is that the VP of operations is making upwards of $175,000 a year.

Mrs. Miller is an excellent candidate and a good fit for the company. Due to the fact that the market value of a VP of operations is in that salary range, this implies that it would cost the company about the same amount of money to hire a professional with similar credentials to Paige Miller. The second issue is equity compensation. Based on the fact that the founding fathers currently hold 3% equity the asking price of Mrs. Miller is too high. In the compensation negotiation, the company can explain that there is not sufficient equity left to pay her that amount. The company should offer her a 2% equity offer instead.

The offer will keep the page satisfied with the fact the firm is paying her some equity compensation. The founders will be happy that they are being paid the most amounts of dividends. In the negotiation, the company would be accepting that the VP of operations would make $55,000 more than the rest of the staff, but it would lower her equity request by 1%. The chances of Paige Miller accepting the offer are high. If Mr. Miller is so greedy that she would be willing to sacrifice anything then she is probably not the person best suited for the job of VP operations. Read More