Vosnap: Because Creative Development Deserves Creative Lawyering

September 10th, 2007

Vosnap is a project/company that emerged from Startup Weekend in Boulder, Colorado last July. A whole bunch of people locked themselves in an office for a weekend with a goal to launch a product by the end of it.

They still haven’t launched, but that doesn’t mean it’s not a great idea. Talented people working together are fun to behold.

One trick, though, is how to properly reward everyone’s efforts. This is really a question with two parts:

1) How to value each person’s contributions relative to the others; and
2) How to issue equity to each person under US securities laws.

The Sand-Dollar-Hour System
I once heard about an alternative economic system developed in west Marin County, Calif. It involved sand dollars as units of currency, and was completely egalitarian in that each person earned a certain number of sand dollars per hour worked, whether as neurosurgeon or streetsweeper. The idea never caught on much, but it stuck with me, and the Vosnap group seems to have done something similar.

As their blog explains, they have 60 contributors, each offering different sets of skills. Rather than try to make judgments of relative importance among them (a sure recipe for collapse of the project) each person got one “share” for each day at the weekend, up to 3.

Simple enough, though it would have been better if they had been sand dollars or cowrie shells. Nobody gets it perfect, I suppose.

Crowdsourcing Cleverness
I have written previously about crowdsourcing and securities law issues. The bottom line is that securities laws aren’t conducive to doling out shares to lots of people.

However, some clever soul must have considered that if each participant is “active in the business”, then the contributors can jointly form a limited liability company in which no securities “sale” is involved. That is to say, if the equity earned is all of the “sweat” variety, then there is no securities offering, and no securities compliance issues to worry about. Note that this only applies to LLCs, not corporations.

A Little Ugliness at Tax Season, but it Gets the Job Done
So Vosnap itself is a corporation, which works well for venture funding purposes. The LLC owns 1/2 of Vosnap, Inc., and the Startup Weekend participants own their relative shares of the LLC.

Clever. The tax issues are going to be a little messy when income tax season rolls around (there will be two entities to prepare tax returns/statements for, and each LLC owner will get a K-1 partnership statement to include in their personal returns), but it gets a piece of the business to all participants and gives them some incentive to keep plugging away at it. Nice thinking.

  • Jay,

    Thanks for your comments. One quick correction: We have launched a public beta, and I would love to hear your thoughts on it. As all newly launched companies say, “this is just the beginning!”

    Regarding the legal structure of the organization. The LLC was the quick and dirty way to set up the corporation over a weekend when under a crunch. It does have a major drawback. We now have to file 60-ish K-1s. There is a better way to do this, where a voting trust is created, and a set amount of shares are placed in the trust, which each founder having a set number of shares based on participation. Frankly, we chose the LLC route because it was the simplest. Nobody knew if VoSnap would continue past the weekend.

    The remaining shares will be split between future investment and the “move forward” team, of which right now there are 5. Other founders can continue to stay engaged for equity, until we raise capital, which could be never.

    The interesting thing is not one founder has asked for additional equity for the work they put in after the weekend. VoSnap continues to be a labor of love that will someday become a real company (when we are all “grows up”), and the vision we have for the product is realized.

    Having grown up in the SF Bay Area, let me tell you that if the Gap and Starbucks accepted sand dollars as currency it would have absolutely worked in Marin….

    Great blog, by the way, you definitely have a new subscriber!

    All the best.

  • Everywhere I go, Micah has already beaten me. Very well written Jay, thanks for your review of our structure. As a founder (however, not one of the “move forward” team), I remain invested in the future of VoSnap and have high hopes of the day we are all “growed up.” The planned features will blow your mind, keep checking in at vosnap.com.