[greggman]

I'm curious why you see these 2 things as different.

Situation #1. 2 founders, one investor. 2 founders quit their jobs, have no money in the back. Investor invests $1 million. Money is used to buy equipment, rent office space, play living wages, hire contractors.

Situation #2. 2 founders, one has $1 million, the other has nothing. Money is used similarly.

It seems like the founder contributing $1 million in the 2nd case should get all the same considerations as the investor in the 1st case.

In other words.

    2 founders
    founder #1 1/2
    founder #2 1/2

    2 founders, 1 investor
    founder #1 1/3
    founder #2 1/3
    investor   1/3

which seems like it should lead to

    2 founders only one of which investing

    non-investing founder  1/3
    investing founder      2/3s (1/3 for being a founder, 1/3 for investing)

I know it's not that easy but I can't see any reasonable way to resolve this. The founder who contributes no cash will likely feel like a 2nd class founder because there's no reasonable way they can own half the company. They can agree they both get the same number of shares but then that makes the founder who contributed the money feel like he took all the risk and got nothing for it.

Off the top of my head, one possible way to resolve it might be to let the founder contributing cash to vest quicker. So day one 25% of his shares have vested and he starts vest 2% a month immediately. That means in 3 years he'll have 100% of his shares where as the founder contributing no cash will require 4 years to vest at which point they'll be equal 50/50?

Of course arguably that's still not quite fair to the founder that contributed cash because his deal is not as good as if he was split into 2 people, founder and investor.

[tptacek]

If we were talking about a million dollars, I wouldn't see things differently from you. Of course, if your founder role at a startup exists at the pleasure of someone paying your salary, rent, and expenses, you're not really a founder, are you? You're an employee. Whatever control you have on paper, the funding founder trumps with their bank account.

[1stop]

If one founder bank rolls the entire enterprise, then they are the only founder, as the is no "risk" to the others (i.e they are getting paid from a known source of income).

I thought this discussion revolved around forgoing a salary, not bringing in initial investment. They are distinctly different.

founders should be distinct from investors in my opinion, I realise beggers can't be choosers, but it feels like you are going to argue a lot over how much that initial investment is worth vs how much the initial effort was worth, and probably fail because of it.

[brudgers]

Suppose Ben has $1,000,000 to invest in a startup and Patrick has zero dollars to invest.

If Ben goes it alone, he believes he stands a 40% chance of a $3,000,000 exit.

If Ben cofounds with Patrick he believes he stands a 10% chance of a $50,000,000 exit.

Why is Ben better off economically just giving Patrick half the equity despite his lack of cash?

Forget the math, if one founder takes issue with another founder's getting rich off the company, then there's a problem that may be deep enough to prevent both of you from becoming rich.

[tptacek]

The nightmare of having to first value 1MM worth of shares on day one of a company, and then have to value Patrick's immediately intangible contribution to the company, both of which involve absurdly difficult predictions, is why you're better off not trying to resolve things between founders with shares. Or, at any rate, this is I think the point Joel Spolsky is trying to make. Reasonable people can &c &c &c.

The $1MM in vs. $0 in situation sounds like a nightmare all its own, though. Has anyone here been in a situation like that? How did it work out?

[brudgers]

Wasn't there a significant disparity in capital investment between Clark and Andreessen at NetScape?