I like this formula, just with an adjustment.
Certain folks will work for you “just for stock”. They won’t really be able to value it.
What can you do this is fair and right?
I have a basic formula:
- Figure out a valuation for the company. If one has been set by outside investors, use that. If not, use $2m.
- Figure out what the person working “for stock” would be paid.
- Double it.
- Give them that much equity.
The doubling it accounts, sort of, kind of, for the risk in get completely illiquid stock.
So if you are pre-product, and someone does $20k of work for you, then do $20k x 2 = $40k / 2m and give them that much stock.