Ask HN: What % of equity is a technical co-founder worth after traction?

[samnadine]

I started as a hobby a platform and today we have 14,000 registered users. I teamed up with a tech guy (50/50), we went through an incubation program but he left later for a PhD. Now we've been selected for a top European accelerator and I'm working with new tech guy.

The company exists (myself working full time) for 10 months. He has quit his job after being selected by the accelerator (working part time for 3 months) and wants 50%. He won't be taking a salary but a loan.

I'm a business guy, but I code most of my time, fairly good/proven designer, have strong connections, pitch and sell. I also bring the business experience and the product design through lean validation.

What would be a fair distribution considering he is joining with lower risk?

[brudgers]

"What would be a fair distribution considering he is joining with lower risk?"

In my opinion, this is entirely the wrong question to ask. The equity for your new partner should be based upon the value they bring to the company - e.g. What is a fair valuation considering the risk of the company failing without the new founder?

To put it another way, you are bringing customers and traction to the startup. And that is your job. The work you did previously is sunk cost.

If you start your relationship fighting over percentages of $0.00, don't be surprised if the relationship doesn't end well. If you don't want to see your new partner succeed equally to you, it's better not to make them a founder.

Good luck.

[argonaut]

Some points:

1) The new co-founder does not deserve 50%. There are only two instances in which I might see him getting 50%: he either brings in money (invested into the company), or he takes a significantly smaller salary than you take. What you give him will depend on how you perceive his value, and how much you need him at this point. Something like 30% is a reasonable starting point.

2) Going off point #1. Are you sure you need a new technical co-founder? Do you feel like this is a gap in your knowledge? Because you may very well be able to forgo the technical co-founder route, and simply start hiring 1 or 2 technical employees. You would need to pay these employees salaries. You would pay them slightly below-market salaries and equity in the range of 1-3%. Nonetheless, there are very compelling benefits to having a co-founder with very strong technical skills.

3) What concerns me the most is that its unclear how well you know this potential new co-founder. What did you think of his part-time work? Was it amazing? Even if his part-time work was amazing, it is still unclear if he is the right co-founder for you. Did he work remotely? How well do you guys get along? How well do you guys communicate? If he worked remotely, it will be much harder to assess how you get along with him.

Something I've noticed about YC, for example, is that I keep running into founding teams (of YC companies) that consist of founders who knew each other as 1) friends from high school, 2) friends from college, or 3) worked together at the same company for 1 or more years. I suspect that YC would be willing to hire 2 co-founders of slightly-above-average intelligence who are best friends from college over 2 brilliant co-founders who worked on one class project together. One of the reasons is because the #1 reason (or at least one of the biggest reasons) for a funded startup failing is co-founder disputes.

[gojomo]

Only you two can negotiate that. Your "top accelerator" also may be able to help with advice.

How much does the prior tech guy retain?

That there's been some de-risking may be relevant... but the past is still fixed/sunk-costs, while the future is open-ended. Treating this, new partnership/new-accelerator, as a re-founding might be fairest, if new guy is the right choice for the long haul. And he might have another equally-good option where he can be a full equal partner. So your project seniority and full-time-work-so-far may not be dispositive.

50/50 can risk deadlock without a 'shotgun clause' or other tiebreaker, in situations where the working relationship collapses but there's still value to fight over.

"won't be taking salary but a loan" seems weird. If the company craters, who will he be paying the loan back to? Cash removed from working accounts to pay a team member's living expenses, cash that could be useful today, is just as dear as paying a salary would be.

[samnadine]

the prior guy has no shares anymore.

These sunk-costs (traction, incubation, awards..) have been the reasons why we've been selected. Joining after is lowering the risk. If he would have started long time ago then 50/50, like with the prior guy.

The loan is a personal loan from the first incubator, which hasn't to be fully pay back in case you fail.

[gojomo]

(1) risks lawsuit unless there's an ironclad purchase/assignment-of-rights with prior guy

(2) only you and he can weigh that prior progress against his future value, and each of your next-best-options.

(3) still fishy and seems irrelevant; if he's receiving cash-up-front from business for living expenses, that either -- (a) won't be paid back in fail-scenario, or (b) will be paid back, when there's plenty of money and it doesn't matter, in succeed-scenario -- then it's mostly like salary, and there shouldn't be brownie points for calling it a 'loan'.

[dylanhassinger]

how long does new guy intend to be around?

How much effort is gonna put in? 40 hours/week or 100?

those would be my questions. No matter what, use a vesting schedule (so you're covered in case he isn't the right cto).

What if it was 5% vested every 6 months, up to a total of 49%?

[samnadine]

Full commitment, shares vested over 4 years with one year cliff.

how do you write on paper/agreement you need to commit more than a full job, like 60h/w?

[gojomo]

Trying to put a "60h/week" commitment into a contract is unwise on many levels:

It's trying to measure by clock-watching something inherently qualitative rather than quantitative.

Most people can't be productive and efficient with that kind of sustained time-on-task, for more than brief crunch periods.

And, if they're a co-founder, you need to trust them, and be setting mutual understandings, at a much deeper level than some contract.

Your jurisdiction's law may (and probably does) differ from the US, but if there's some process by which he (or conversely you) can be let go if things aren't working out, and thus any payments or vesting stops, then that's your elastic all-purposes way to deal with someone's failure to meet expectations. Writing down some unrealistic commitment metrics can't replace the kind of deep mutual trust and shared mission you'll need.