I am working with a corporation to create a spinout and run it. The product is developed, with mainly sales and BD that’s now needed. Their current proposal is that they hold ~35%, I hold 10% and we reserve the remainder for VCs investing in the company. Is this a structure that could get funding or is the low founder share (mine) a non-starter for VCs? Based on my initial discussions with some VC firms, I’d say that we won’t be able to successfully raise capital, but I wanted to check here.

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You need to get a lawyer involved at this point.

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Your cap table needs to account for employee incentive plan equity (10-20%) and your founder should be significantly higher due to future dilution.

Agree that may be a low amount for VCs to feel like you are effectively motivated. Be sure to consider tax implications of structuring the spin out. Agree time to work with a lawyer, accountant, and valuation firm if you are not yet.

5% for a hired CEO is not unusual or especially low if the business has been funded.

I learned this recently from my own experience. I was initially offended by a low ownership % for a new co - but funds have already been raised.

We also need room for ESOP and the series B

This structure is similar to a biz I’m running now.

The head of a holding co recruited me to run a new subsidiary, current valuation $20M. I have a small %, vc has 30% the primary owner has majority shares

we are reserving about 50% for a significant second raise.

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