Ask HN: Equity and cofounder title for first hire?

[jeffrese]

I started a company this year with the mission to help end metabolic disease influenced by lifestyle. We do this right now by selling ketogenic cookies and teas directly to consumers. The company is Fat Snax, fatsnax.com. I started selling in April and will do $80,000k in sales this month and $100,000k in sales next month.

I hired a marketing consultant in April and he has been integral to our growth and success. My deal with him at the time was a $600 monthly retainer plus 15% commission on sales with monthly contract review and renewal.

He's asking to made a co-founder, given equity and still draw a small salary. My question to you is what is reasonable given that he hasn't put money in, he gets paid, I'm still a volunteer and founded this long before I hired him?

[mchannon]

I'd consider actually doing it. Consider who's the dog and who's the tail- is your company making him rich or is he making your company rich?

By transitioning him to equity, you still get the benefit of his continued hard work but now the company's profits don't all go to him. Don't drop it in his lap- set it up with a standard 4-year vesting schedule, but I'd actually do one better and go above the 30% he asked for. (Maybe 33%).

I seriously doubt you could replace him under the same terms. Find someone else, sure. Find someone who performs this well, not as likely.

You have a golden goose here. Don't begrudge him his grain. Just quietly collect the golden eggs, keep him so happy he lays more eggs, and give him zero reason to think it's only a matter of time before you slaughter him for meat.

[simantel]

Yeah, I agree. The company was started in April, and the consultant joined that same month. Obviously you, Jeff, know better than we do, but it seems likely that he's been a huge part of the company's success. What would happen if you lost him?

[jeffrese]

I would not be where I am today if he wasn't a part of this. What would I do if I lost him? Answer is I don't know. The company would not implode and we would keep moving forward but at what cost?????

Talking this out helps. Thanks for the input.

[muzani]

I did have a CMO/COO for my first company. Transitioned him to equity and cofounder status after a few months with him. It turned out to be an awesome deal. He got us acquired in the end because of his connections and hard work.

The thing is that for maximum stability, most businesses need a cofounder. Partly to bounce ideas off, to keep you focused and slap you when you get distracted, and to act as an emotional pillar when things inevitably go bad.

For a lot of solo founders, their real co-founder is actually a family member: brother, spouse, daughter/son. If your first hire is the only person you're bouncing ideas off, they deserve a co-founder title. An employee, even as a right hand man, will have much more difficulty shaking sense into you.

Another thing to consider is that putting someone as cofounder status makes this company their life focus. How much would that improve his performance?

It's normal for cofounders to not take put money in and take salary, they just get a much lower share. One digit equity normally. But the drawback is that one digit equity doesn't qualify for a cofounder status. Maybe you can start with 5% but offer to sell him an additional 10%.

[genbit]

I personally will not do it, and will go with early employee, but you need to evaluate what’s right for the business. If you do give equity - setup a vesting.

https://www.quora.com/What-is-a-fair-amount-of-equity-for-a-...

[jeffrese]

What if I said he's asking for 30% equity?

[anonyx69]

Laugh him out of the room. The guy is pulling in $15k/month from the job. Some equity might certainly be in order, but definitely setup a standard vesting schedule with a one year cliff. 1%-5% equity for an early hire makes perfect sense at your discretion.

[jeffrese]

Thanks! I was thinking 5% as well.

[quickthrower2]

As an aside: nice idea! I'd buy the product, if I lived in the US.

The cookies are still quite high in calories per 100g, so if you could get that down all the better.