What are the pluses and minuses of this arrangement, and do you think the new business will be successful?
Investor

Pros

Cons

Al

Huge

∙

capital

business, showing a half­hearted commitment to the new

investment

venture business.

of 50­75k

∙

Al feels that he should continue working for the present

The role of Al is not being mentioned at all and this

needs to be addressed.
∙

Al seems to appear as a “sleeping” investor who

demands the largest pie of the company. The other partners may be able to find cheaper capital funding and still retain a larger ownership of the company.
Bill

The pay of ∙

Bill states that he could work nights and some

$25k seems weekends. The partners will have to fit in his schedule with to be the company and also ask if he is able to work from home if

reasonable.

necessary.
∙

The investment of $10­20k and his inflexible works

does not seem to warrant him to be a large shareholder, especially when there are other investors such as Al who is willing to invest 3­5 times the amount of Bill.
Carl

Carl

can ∙

potentially

The expected compensation of $75k is essentially 1/3 of

the revenue of what Carl is bringing in, thereby eliminating

bring

in any value that he adds on for the team.

$225k

of ∙

Compensation of $75k from a startup company also

revenue for seems to be unreasonable, as compared to his present the company.

compensation of $50k. Carl should expect a lower

compensation for salary, but to be compensated in terms of stock options when the company does well.
∙

Moreover, Carl also expects to be compensated in terms

of equity as well.
Dave

Dave

is ∙

committed

Dave’s expected compensation of $45k is higher than

his current pay by the established firm in the corporate

to working world. Dave should lower his expected compensation, but full time.

expect stock options as a form of incentive when the company does well.

Elisa

Elisa

can ∙

potentially bring in terms of profit for the startup company.

in ∙ Hence, Elisa should be compensated less than $167k

revenue of ∙
$500k

The additional $500k would translate to a rough $167k

Additionally, incentives (stock options) should be given

for to Elisha when she is able to meet or beat expected sales.

the company. The first problem with this case is the non­compete agreements employees will have to sign before they quit their jobs. Assuming there are no non­compete agreements. The current proposal for Al and Bill would create conflict of interest.
However, common benefits that startups have over the traditional corporate world include perks such as increased flexibility in work hours, more creative control, increase in work ownership and earlier exposure to more responsibilities which should translate into higher productivity.
Statistically, 55% of new startups do not make it beyond five years and only 29% are still in business 10 years after. Therefore, if these five individuals were to leave corporate and start fresh

their personal financial security would decrease and they would lose all the benefits that they enjoyed working for their company. This may not be a huge problem for the younger members of the group. However, older members with children and mortgages would want to be compensated more for the risk that they are taking.
Whether the team survives beyond the five year mark depends on the company’s ability to generate enough revenue to sustain its operations. Our team made the assumptions that the startup cost is low. The case stated that the sales generated from Carl’s client would