[downandout]

>The more progress you make on the business, the easier it will be to get a great cofounder.

I am not trying to be pedantic...but are they really a cofounder if you've hashed out the idea and made progress on the business prior to their involvement? It's an important question in my mind, because a cofounder typically receives far more equity than virtually anyone else that becomes involved with the business after it is founded, and it also carries legal ramifications.

I have personally been in a situation where I founded a company and created its technology, and when I needed money, someone volunteered to be my "cofounder". He eventually stole my IP, transferred it to a new corporate entity, sold it, and made more than $60 million. I wound up with nothing. While what he did was outright theft, I assisted him in it and made the legal battle infinitely more difficult for myself by declaring someone that clearly had nothing to do with founding the business a "cofounder" early on.

[nostrademons]

It would disqualify nearly all cofounders of famous startups if they had to form the company before one of them made progress on the idea. For example:

Steve Wozniak built the original Apple I attending Homebrew Computer Club meetings. Steve Jobs saw the prototype, realized it would be huge, and then talked Woz into founding a business around it.

Larry Page had started Google as a doctoral research project to download the web and make sense of its link structure. Sergey's original startup idea was to order pizza via fax machine, and he'd started work on it with some other friends before abandoning it to go work with Larry.

Mark Zuckerburg created FashMash and then Facebook and had some early traction among his house at Harvard before convincing his cofounders to join.

Drew Houston created DropBox as a solo founder and then convinced Arash to join after getting accepted to YC.

Apoorva Mehta started Instacart on his own and then got cofounders after YC.

The usual rule-of-thumb is to give close-to-even equity splits to cofounders here, because most of the work of building a company lies ahead of you, not behind you. You definitely do want to vet your cofounders for trustworthiness and have some idea whether they're interested in founding a company with you or whether they just want your idea. Usually the best defense to the latter is having something the former needs, either deep domain knowledge or technical skills or connections in the industry.

[marincounty]

"Mark Zuckerburg created FashMash and then Facebook and had some early traction among his house at Harvard before convincing his cofounders to join."

I don't think it went down quite like that? I just can't let that little dude slip into history as the brilliant, modern day Jobs, or Gates. In my mind, he capitalized on someone else's idea--with the help of a lot of people, and got very lucky. Whenever I(under a pseudonym) use his site, I wonder why there isn't more competition. I sometimes think the very act of stealing someone's idea/site is the reason for Facebook's success? "I better not question that new hire--I'm not sure I even belong here? I was wrong on mobile? Maybe I should just follow their advice?"

[elmar]

Steve Jobs and Bill Gates also capitalized on someone else's idea. The "idea" is just one factor on a very complex equation.

Take a look at this great movie "Pirates of Silicon Valley"

http://en.wikipedia.org/wiki/Pirates_of_Silicon_Valley

[Tloewald]

Ideas aren't worth much. The real idea that Steve Jobs and Bill Gates had was that personal computers and software were compelling products that would have value to ordinary people.

I suggest you read the book "Hackers" by Stephen Levy (aside from probably giving more accurate insight into the origins of Microsoft and Apple, also includes timeshare, Unix, the free software movement, and IIRC Lisp Machines in its recounting, all in a lot less space than Isaacson's complete ballsup).

http://www.amazon.com/Hackers-Heroes-Computer-Revolution-Ann...

[sparkzilla]

>You definitely do want to vet your cofounders for trustworthiness and have some idea whether they're interested in founding a company with you or whether they just want your idea.

This advice would have been handy for the Winkelvoss twins, who hired Zuckerberg to build their social network project. Instead he secretly held their project back while building his own version, including their ideas. The rest, as they say, is his story.

[elmar]

Why not use a vesting scheme.

[AceJohnny2]

Convincing arguments have been made that it's usually a better idea that co-founders get equal equity than not, to prevent arguments about said split which are much more likely to doom your startup. It's like that point about arguments in a relationship: would you rather be right or be together?

http://avc.com/2011/04/how-to-allocate-founder-and-employee-...

Edit: I see you added that second paragraph after I wrote this out. I'm sorry for your situation, that must've been horrible. However, it sounds like in that situation the toxicity of the co-founder is more to blame than any initial attribution or equity split.

[kzhahou]

Thanks for the link.

> The founders should end up with about 50% of the company, total. Each of the next five layers should end up with about 10% of the company, split equally among everyone in the layer.

This is the typical, and exploitative, arrangement in silicon valley! In today's climate, the founders often get money very early and start hiring right away. They have no real personal risk in the venture, and even if it fails completely their "founder" status will serve them well at the next go-round.

The founders had an idea and some rough prototype, but the product is built and the company direction is executed by the next 10 people, and the next 10, and so on. But while the first 10 Employees get to share 10 percent of the company, they sit side-by-side with the 3 founders who have 10-20 times as much as any one of them.

We all take it for granted that the founders' contribution should be worth so much more than mere employees. But who writes these blog posts on how to distribute equity, with 50% to founders and 10% to each "layer" after? Well, it's not the employees. It's the investors and founders themselves, who need to solidly stand behind the idea that at a company that faced failure every day and with every competitor launch and had to get every aspect right, in the end the people at the top should enjoy mega-riches and early retirement, while the lowly workers enjoy a nice bonus equivalent to a year or two salary.

----

If you believe in avc.com's guide of 50% to founders and 10% to each subsequent "layer", I would counter that the founding team is itself a layer, and each layer should be compensated equally. There is no justification for the first layer (founders) owning as much as the other layers combined.

[nostrademons]

If you believe it's exploitative, why not take the other side of the trade? Go become a startup founder yourself.

Lots and lots of people in Silicon Valley do that, and ultimately, that's what's causes market correction. If there are way more startups out there than talented engineers capable of building products, then the engineers can negotiate a much better deal for themselves. Or they don't and go out of business, but if that's the case, then your initial assumption that they have no real personal risk in the venture doesn't hold.

I know a senior engineer (Boston area, not Silicon Valley) that's made multiple millions multiple times as an early employee. She comes in to startups after they've fucked up their v1 so badly that they can't bring it to market, negotiates a very sweet equity package, fixes the product, and then cashes out when they IPO or get bought.

[kzhahou]

> Go become a startup founder yourself.

The issue isn't me. And, I might already be a founder. That's besides the point.

I'm happy for your friend. That's excellent, to be able to negotiate well. Most people don't. And most people are TOLD, repeatedly, that 1% is an "excellent" percent even as the earliest joining a company.

The word "exploitative" is as tricky today as in centuries past. If the employee doesn't want to work for peanuts, why not go somewhere else? The market will eventually correct, compensate everyone fairly (by some definition of "fair"), etc. Well, my argument is not that the market itself is broken, because employees enter them under free will. My point is that engineers (early and otherwise) should not accept that their contribution is worth so much less than the 2-3 people on top. This is especially true for the first engineer, who joins at 1% next to the founder at 40%, but it applies to every after as well.

[AstroChimpHam]

I've been both a founder and an early employee. As an early employee, I always received a salary, and knew I could leave any time I felt like it. My level of risk was low, and I was perfectly happy with my equity knowing I had a nice upside without much downside at all.

As a founder, I haven't paid myself in months, and have commitments to my customers such that I 100% can't just shut things down and leave to do something else without killing a lot of relationships and getting a terrible reputation.

Of course, I can only speak to my own experience, but I'm satisfied with my amount of equity in both situations.

[rday]

I've been a founder and an early employee as well. As a founder, you sign on for the bad times. As an early employee, I always got duped.

As an early employee, I've had to go without a paycheck on multiple occasions. I had to go without healthcare for several months even though I was told the company already had it in place.

Sure, I could leave anytime I wanted. But I would forfeit all my stock if I left. Even if I left because they stopped paying their engineers. Besides, the money was coming. Why leave now? They promise they will make it up.

I've been told that everyone in the company had to take a 20% salary reduction to keep things alive. I could have left then too. Again, forfeiting my shares. But again, I bore the downside of the business without anywhere near the potential upside.

The important part is that none of this was malicious. The founder just had no idea what he was doing, and thought they had to lie for the good of the company.

As an early employee, I hired people into both the companies I'm speaking about. I'll never do that again. I haven't ever done that again. I urge everyone to not be the first engineer.

[simonebrunozzi]

Ouch. This is terrible.