[aneth3]

> We have laws in this country to prevent people from getting screwed. Work with people you like and trust, and focus on building a product, not on what your "stake" is.

The most important reason to negotiate equity early is not to avoid people getting screwed, but to avoid fundamental equity disagreements from screwing everyone.

Even if you like and trust someone, this does not mean you have compatible beliefs on equity or vesting.

If founder B joins founder A, and they move forward with founder A's idea, it's quite possible that years later, when they decide to raise money, founder A will insist that he deserves 90% of the equity, while founder B will want 40%. You'd also be surprised how much people's attitudes and allegiances can change when heavy hitters enter the picture and large amounts of money are at stake.

Laws will not prevent you from getting screwed if you don't have any contractually established rights. If you sign an assignment of IP for your work to a company, you can't later sue for equity to avoid getting "screwed."

[tatsuke95]

This is incredible to me. I suppose we'll just have to disagree. I'm not saying to never take care of this. But you don't end up in a Facebook-like dispute overnight. If the very first thing your company (and I use the term loosely) does after thinking of an idea is have an equity contract written up, you're doing something wrong. How do you even determine who gets what? You'd be amending it every day.

>"If you sign an assignment of IP for your work to a company, you can't later sue for equity to avoid getting "screwed."

You most certainly can. But you will lose, because IP assignment is clearly defined. Equity in a business with no IP, no assets and no income, before any work is done, is not.

I've done government procurement in the construction industry. I understand the value and importance of contracts. You guys are talking like this is a multi-million dollar enterprise undergoing a complicated equity dispute. It's not. It was four young guys (sexist assumption!) in a dorm room with an idea. There was no business, and not a single dollar (as far as I can tell) was made based on that idea. They complicated the situation themselves.

You are cynical about the legal industry, yet you think that whatever these guys scribbled down on a piece of paper with regards to an equity split, even if notarized, will have the utmost legal standing? That if they had split the equity equally among four, and one had done all the work and decided to dispute it, that the court wouldn't look at the case objectively to determine fairness? That's simply not true.

So, yeah, I'll stick with my advice: if you're a fledgling startup, don't waste intellectual, physical, emotional and economic resources on your "stake". Earn it. Having a contract will not prevent disputes; I can speak from experience on that. Get to work and build a product. When there is something actually at stake, then worry about your share of it.

[gyardley]

This sounds like really good advice, because executing is so important, because there's a whole slew of other things that fledgling startups worry about that they really don't have to, and because sorting out equity can be hard and awkward, and therefore it's tempting to put it off.

Nevertheless, this is terrible advice. Disputes over equity are often company-killers.

You are doing anyone who listens to you a real disservice.

[aneth3]

I agree in the beginning - "get to work and build a product." Spending a day or a week on something without having this difficult conversation is not a huge risk, but don't spend months or years. The conversation only gets more difficult and can destroy whatever value is created.

> So, yeah, I'll stick with my advice: if you're a fledgling startup, don't waste intellectual, physical, emotional and economic resources on your "stake". Earn it. Having a contract will not prevent disputes; I can speak from experience on that. Get to work and build a product. When there is something actually at stake, then worry about your share of it.

I think this is bad advice, and goes against both my personal experience and almost every bit of startup advice on the internet.

Sure, you don't need a formal contract, but you do need to make sure you are on the same page equity-wise, while being open to renegotiation. Generally, that "same page" conversation should be documented somewhere, even as a simple email. While that email IS legally relevant and possibly enforceable, the point is to get keep everyone's memory honest and provide clarity.

An email thread like: "Based on our conversation, we plan to split this company equally three ways. Is that everyone's understanding?" "Yes, sounds good" "Yep"

Can be very helpful to avoid misunderstandings both presently and in the future. The point is not to get into a lawsuit, but to avoid one.

[tatsuke95]

>" The point is not to get into a lawsuit, but to avoid one."

I agree with this. But equity is a sticky thing, and at the stage we're talking, no contract will be so air-tight as to avoid disputes.

In my experience, sometimes it doesn't matter what you've written and signed. In those cases what matters is the spirit of the contract (written, verbal or implied), intent and good faith. Call me an optimist, but if you're working with honourable people (as in the article), disputes can be managed objectively, even if you violently disagree about things. I believe our system is efficient in that matter.