Starting a Company Called "Range"

Here's the complex history of Range and its owners: Jo, Sam, and Pat

In 2014, Jo had an idea to create a physical therapy app called Range and spent about 5 hours a week over 2 months refining it.
After working on the idea, Jo got Sam really excited about the idea, and they both decided to quit their jobs and work full-time on Range for 6 months to get it off the ground.
Though Jo didn't have much in savings, Sam was a little older and saved enough with a $60k/year salary, and wanted to take a risk on Range by investing $20k .
Over the next 2 years, Range started making enough money for Jo and Sam to start taking a salary, but as owners, they each spent 5 hours a week over the year doing extra work on the company.
2016 was a big year for change when Jo decided to leave the company and Sam had to spend 10 hours extra a week instead of 5 to keep the company going.
That same year also brought in a great investor named Pat who wanted to make a $100k investment that could be spent on paying employees an average of $60k/year + benefits.
Pat wanted to help out in Jo's absence and committed 2 hours per week to working on Range.
In 2017, Sam and Pat continued to contribute the same amount of extra time as the year before.

Here's how it all works out in weighted hours (wHrs)...

2014: getting started

Jo (the creator) invested 1088 hours

1088 wHrs

Jo owns 26.9%

Sam (cofounder and first investor) invested 1044 hours AND worked 952 hours in 2013 to earn the $20k after taxes

1044 + (952 x 2) = 2949 wHrs

Sam owns 73.1%

2015: traction

Jo invested 261 more hours

261 + (1088 x 2) = 2436 wHrs

Jo now owns 31.9% ↑

Sam invested 261 more hours

261 + (1044 x 2) + (952 x 3) = 5206 wHrs

Sam now owns 68.1% ↓

2016: transition

Jo left the company

(261 x 2) + (1088 x 3) = 3785 wHrs

Jo now owns 26.0% ↓

Sam invested 522 more hours

522 + (261 x 2) + (1044 x 3) + (952 x 4) = 7986 wHrs

Sam now owns 54.9% ↓

Pat (investor and advisor) invested 104 hours AND bought 2667 hours of paid staff time

104 + 2667 = 2771 wHrs

Pat owns 19.1%

2017: next generation

Jo left the company

(261 x 3) + (1088 x 4) = 5133 wHrs

Jo now owns 23.3% ↓

Sam invested 522 more hours

522 + (522 x 2) + (261 x 3) + (1044 x 4) + (952 x 5) = 11287 wHrs

Sam now owns 51.1% ↓

Pat invested 104 more hours

104 + (104 x 2) + (2667 x 2) = 5647 wHrs

Pat now owns 25.6% ↑

click here to download the example file and play around with it yourself

How might this have worked out through negotiation?

Jo might have offered Sam 20% to invest and join in on Jo's big idea.
When Pat invested in 2016, because the company was generating solid revenue, Pat may have taken a 10% share in Range, diluting Jo to 72% and Sam to 18%.

In short, Jo's idea (72%) was drastically overvalued, while Sam's commitment (18%) and Pat's support (10%) were far undervalued.

Ready to try it? ‣

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