Startup company stake - Please advise...
Hi everyone,

I need your advice on starting a company with two other partners, and my question really is about equity levels. Here's the story so far...All three of us have been working for a university and for various reasons we all have decided to move away from the academic world and go in industry. One of the partners (let's call him X) has good links with industry in China and he managed to bring money over to start a project, which is the design and development of a point-of-care device. The contract terms between the university and the funding company made clear that any IP arising from this work will belong to the company, with us three being the named inventors in the patents generated.

They were happy with the outcome and through X's prior links with company (X is a board member in the company) it was agreed to form a new company. They agreed to invest around £300k in return for about 40% stake in the new company. The remaining 60% would be divided as follows: 20% for X (he claims he had bought in the past seven patents from his previous company which went into liquidation, investing £120k - later he said it was actually £150k), 20-25% for options for other paeople that will eventually join the company at a later stage) and the remaining 15-20% for myself and the third partner.

At this point I need to point out that myself and the third partner are making things happening (in terms of engineering) and without us it would impossible (or at least it would take a lot of time for him to build a new team) to start the company now. Also, it is important to note that X has no other option but to leave university, as his contract is due for re-evaluation in September, with negative predictions for the outcome.

Some more info about the forecast of the new company: we will be using the manufacturing facilities of the funding company and we will have direct access to their sales network, They say the market is already there, they have clients and last year they had a turnover of more than $10m (it might be more, i can't remember accurately). My salary will be slightly less than the market value (probably around £35k/yr) and I suspect X will be asking for a lot more, as he takes for granted that he will be the technical director and acting CEO of the company.

There are many details that we're not told of, because X is taking the excuse that his contact in he funding company does not speak English fluently, that's why all their conversations are in Chinese. We get the occasional email in English circulated among all of us, but nothing mentioning stake levels. I feel I'm heading straight towards a not-so-good deal, while I know for a fact that X will not go below 20% as he immediately points his finger towards his £150k investment in previous patents, while making claims of the type "I have achieved with great efforts your involvement in the new company as co-founders with a stake, rather than just employees". I have started to grow tired of his bull and I'm trying to figure out how I can go about sealing a good deal for me. I have previously discussed with him the matter of equity, as one day he came to us and said "when the time comes to decide equity, you must be modest" and at that point I told him that modesty has no place in business, I will only be fair and I won't settle for anything less than fair, I will literally walk away if I'm not happy with what's offered to me.

I have the feeling that this is the ONLY time I can bargain with him, or them (the funding company), as this is the only time I feel that if i break the team, he won't be able to go ahead, at least not according to his time plans. I'm fighting with myself, as one side of me wants to grasp this opportunity of potentially making enough for the rest of my life, while my other side is telling me that X is trying to manipulate the whole situation based on the trust he has with the funding company, and that without him they wouldn't invest, which is probably true. Still, I can't trust him, at all.

Apologies for the long story, I just needed to draw, with as much detail as possible,the whole picture. I would appreciate any thoughts you might have, I desperately need some advice from people who understand business. I'm very good at what I'm doing but when it comes to business, it's all chinese to me....

Thank you in advance.

S.