Ask HN: How to split equity for full-time and part-time co-founders?

https://news.ycombinator.com/item?id=14131985

by vinalia • 9 years ago

4 6 9 years ago

news.ycombinator.com

I'm working full-time on my first startup and bootstrapping the company with money I've saved. I'm the technical person while my co-founder is a support/marketing/people person (our vertical is heavy on support).

My co-founder is working full-time for another company and only able to meet a couple nights per week. They have financial obligations but are committed to joining full-time after we land our first sale. We were co-workers at a previous company and are good friends.

FWIW, we did UX work to de-risk the product a bit (estimating our product/market fit and profitability through user research before launching).

Our plan is to do the standard 4 year vesting with a 1 year cliff.

Would a 50/50 split make sense and should there be any special terms to make it more even (like starting their vesting after they join full-time)?

Happy to fill in any more details. Thanks for the help!

philipDS• 9 years ago

IMHO if your product and company works, you're in it for a long time. That means your co-founder should keep their motivation long-term as well.

If your first sale happens within the next few months, I would keep a 50/50 split just because they will put in a lot of effort in the future. Alternatively, you could start your vesting now and and the other founder could start vesting as soon as he joins full-time. Not sure if this is legally possible.

Another option would be to count the difference in time you spent on it and translate that into equity and ask your co-founder to give you that (like 45% vs 55% equity split). I wouldn't go more than 5%, since I prefer to keep things even. Again, you've got a long road ahead of you, so make sure both of you feel comfortable with the split and with future obligations as well.

vinalia• 9 years ago

I think you're right about keeping the long-term goals of the company in mind when doing the equity split. A couple months in the span of 6-10 years is nothing. We'll stick with the 50/50 split based on this.

On the vesting part IANAL so we'll stick to what works and not try to monkey with the vesting schedules.

Thank you for the advice!

hanniabu• 9 years ago

Similar to what Phillip said, you can do an even split, with the vesting time proportional to time put in.

NotSammyHagar• 9 years ago

I have thought about this kind of problem. I have some ideas that I'd like to share with my friends, but I've been some effort into thinking about the market and how to make money from implementing ideas. What would be the strategy for dividing up ownership with several people who would be helping me? I really struggle with this. I am always hearing ideas are a dime a dozen, but if an idea is my baby, I need to figure out how to get past this and share it. I know I would need help to build anything of consequence.

tylercubell• 9 years ago

I think your challenge is to be objective about your co-founder since they're your good friend. From the outside looking in, it sounds like the equity split needs to reflect the amount of risk you're both taking on. You're full-time, they're part time. The words: "financial obligations", "but", "committed", "after" all create a lot of doubt and uncertainty in my mind. The percentage is something both of you will need to work out but I definitely think you should have the majority share, at least initially. If something changes then both of you could reevaluate later. Perhaps you could put something in the contract that would incentivize your co-founder to join full-time in exchange for more equity.

siegel• 9 years ago

Just to throw out another potential concern with a 50/50 or similar split right now - what if your co-founder never decides to join full-time. What will you do then? Will you fire him before he vests in anything significant? If not, then he's potential deadweight on the cap table, particularly from the point of view of potential investors.

There are multiple considerations here. tylercubell is correct that you are taking a risk here that you co-founder isn't. You may never land your first sale. in that case, your co-founder has been earning money at a full-time job and you haven't. Should your equity percentage reflect that?

But let's say you are comfortable with an equal or nearly-equal split, some options to make things more fair, incentivize your co-founder, and make your company attractive to potential investors:

1) Slower vesting for your co-founder or having at least a tranche of his shares only begin to vest when he joins full time; 2) Offering your co-founder a small vesting equity stake now and an option to purchase more that only begins to vest if he joins full time; 3) If you are going to grant your co-founder a large equity stake now, with significant vesting before he joins full-time, the co-founder could grant the company the option to repurchase a certain percentage of shares at cost if the company has its Series A before he joins full time. This would avoid the deadweight on the cap table problem.

On #1 and #2, one core idea is to make the grant of shares now (not down the road) to ensure your co-founder can purchase the shares cheaply, before your common gets priced.

Ask HN: How to split equity for full-time and part-time co-founders?

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