UpDown: Confidential Instructions for MICHAEL, enumerate Michael's role and outcome in this negotiations.

Although you had asked Georg and Phuc to anticipate the proposal you would be emailing, you

wondered how they would react to its contents when you hit the SEND button on February $5.$ The

email included a specific proposal for restructuring the equity split between the cofounders, and

stated politely that you felt as though you were carrying too much of the workload and that the

current equity split did not match each person$$s level of contribution. You had mentioned this to

each of them on more than one occasion, and neither of them had argued with you about it$.$ The

proposal you emailed is aggressive, but you have not asked for a single basis point more than what

you feel you truly deserve. Not only have you been working harder than everyone else, but you

were also the one who had the idea, and now you are the one bringing in the angel money.

When you saw the words $$Message Sent$$ on your computer screen, you felt confident that

because the three of you have a great relationship, you would be able to handle any potential

conflicts. However, you still felt it was important to go over how you should approach the ensuing

negotiation. As you see it$,$ there are four key issues to negotiate. To help you navigate the

complexity of this negotiation, you have created a scoring system to evaluate the degree to which

each issue matters to you. $($See Exhibit M$-1.)$ Essentially, what you have done is to translate all of

the issues into $$points$.($See Exhibit $4$ of the $$Negotiating Equity Splits at UpDown$$ case for an

overview of the four issues to be negotiated by the founding team.$)$ You have also given some

thought to how the other two would likely approach each issue. The following is your analysis.

Issue I. Founders$$ Equity$$Split Between Michael, Georg, and Phuc

Clearly, the most salient issue in this negotiation is the amount of Founders$$ Equity each of you

will receive. Your proposal represents what you think is the fairest redistribution of equity, given the

contribution that each person has made and is expected to make. In fact, you thought long and hard

about these issues, and you communicated your reasoning in the proposal itself by clearly

delineating each person$$s contributions. This made the proposal not simply a request, but a template

that all three of you could use to hammer out any disagreements.

Your proposal gives you about $9\%$ more Founders$$ Equity than in the original $$November

Agreement$($which would have given you about $36\%$ of the Founders$$ Equity$).$ Georg and Phuc$$s

shares are, of course, reduced as a result. $($You gave Georg a bit more than Phuc because he has been

with the company since founding, and because Phuc will be receiving a salary.$)$ You strongly believe Do Not Copy or Post

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$809-021$ UpDown: Confidential Instructions for MICHAEL

$2$

that you deserve the extra $9\%,$ but would be willing to accept a smaller increase in your shares as

long as your stake is greater than what it was in the November Agreement. If your share goes back

to your amount from the November Agreement, that would be a deal$-$breaker for you.

You doubt that Georg and Phuc will want to push back too strongly on this. They may want to

reduce your share by a few percentage points relative to your new proposal, but not much more than

that. Every $1\%$ decrease in your Founders$$ Equity $($below your current proposal$)$ is equivalent to a

$40-$point loss to you. Thus, receiving $5\%$ below your proposal would be a loss of $200$ points to you $($as

shown in Exhibit M$-1).$

Issue II$.$ Salary for Phuc

Initially, when Phuc had argued for a salary$$in addition to receiving Founders$$ Equity$$you and

Georg had been skeptical. You felt that everyone was giving up something in order to work on this

venture, and that it was not fair for only one person to receive a salary. Phuc had argued that while

you and Georg $$would only be giving up a social life at the Harvard Business School,$$ he would be

giving up many thousands of dollars. Phuc revealed that his current annual salary was close to

$$200,000$ from his contract$-$consulting work. With the time he needed to put into this venture, he

claimed, his annual salary would likely drop to $$40,000$ or so$.$ You and Georg pushed back, arguing

that the opportunity cost to you is not simply a social life, but valuable time networking and

studying. In any case, you eventually agreed that Phuc should receive some of his lost compensation

in salary payments. But how much should he get paid, and shouldn$$t the fact that he receives a

salary reduce his share of Founders$$ Equity?

You believe that your proposal does a nice job of starting to answer this questio