Don't Give Free Carry If You Can Avoid It

In a recent engagement I was working on I saw a really bad instance of the result of giving a number of people really small amounts of shares in exchange for services, or help.  Those small shareholders basically did not give a hoot and were prepared to sell the dominant VC and management down the river when a ridiculous offer came around the corner.

The free carry situation can create the following issues :

1. When you have to get any documentation signed, like a shareholders agreement,  you will be spending an awful lot of time and legal fees running around getting those little shareholders to sign documents.
2. Small shareholders who are given shares don't have the same agenda as Founders and VCs.  Simply because their 'pain' in investment is typically low to nothing.  So whenever anyone even thinks about selling they are the ones in line first with their hands out.
3. You have to communicate with them all.  Constantly.  And it can be a bit of a pain.

So if you really need to do the free shares thing, or take in small parcels of money, then do it - but just be aware that from a housekeeping perspective it will undoubtedly get messy at some point in time.