| Me and a co-founder are planning to launch a startup. We are having trouble splitting equity in a way that seems fair to both of us, so would welcome any suggestions. The gory details are: Me:
Technical contributor from coder to manager a team of devs.
Will need to travel across the world (and ready to do so) to make this work.
Full time with no pay (leaving 6 figure job for this). Him:
Main Visionary, came up with idea, documented scenarios, conducted some sort of user study.
Will supply seed funding - 10-15k/month.
Part time until company can sustain both of us.
Can be the CEO, good at generating connections with non-tech world. I looked at the equity calculator[1] and it gave me 55-45% split in his favor without considering his investment. Per Chris Dixon[2], initial seed investment should be treated as a loan converted into equity at time of external funding at the same rate. We don't ever want to take external investment given that he's rich enough, so he's not interested in this model even if I agree to some upside while converting loan to equity. Having all said and done, he's ok with something in the range of (55-60%) for him, (20-25%) for me and 20% for key employees. I just _feel_ this is too low for me given the kind of sacrifice I am putting in - several folks we are trying to hire to help from a tech perspective are hard to get, as always, and I have a track record of understanding other people's visions and running with them (not too good with coming up with ideas myself) References: [1] http://foundrs.com/calculator/index.php [2] http://cdixon.org/2009/08/23/dividing-equity-between-founders/ Edited for formatting |
From your description, your wealthy friend:
1. Came up with an idea that he would like to pursue. 2. Has the money to finance the venture. 3. Is willing to contribute his time on part-time basis until the venture bears fruit.
You are the technical person he is going to rely on to build the product or service, and will be responsible for much of the early heavy lifting. You are leaving a job with a $100,000+ annual salary.
What's wrong with this picture?
1. Your friend came up with an idea that he ostensibly can't execute on without the skills you bring to the table. At the same time, he apparently isn't entertaining the possibility of paying you for those skills in anything but equity. There is certainly a reason for this, and it's not likely a good one.
2. Your friend "can be the CEO", but CEO isn't a part-time job. The fact that he's only willing to work part time on this until the company can sustain itself says a lot about his true confidence in the venture.
3. Your friend has committed to $10,000 to $15,000/month in seed funding. How long is he willing to continue with this arrangement? Is there a limit to the total amount he'll invest? What if you need more than $15,000/month? What assurance do you have that your friend won't seek to renegotiate equity if the business requires more investment than he originally anticipated? Given what you've written, I suspect you have no satisfactory answers to these questions.
Bottom line: you should not be worrying about equity - you should be worrying about the entire deal structure.
You are effectively being asked to relinquish a six-figure job for an unpaid position that provides a minority equity stake in a company being "co-founded" by a person who a) won't be dedicating all of his time to the venture until he thinks it's worthwhile and b) who has only committed to injecting cash into the venture in small, monthly chunks. This is a wonderful arrangement for your friend as he receives almost all of the protections. You, on the other hand, risk the most and get virtually none.
Caveat emptor.