[HN Gopher] Ask HN: Co-founder equity split methods?
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Ask HN: Co-founder equity split methods?
I am a solo founder that created a MVP with help from a friend. The
product has both software and hardware. I wrote all the software
and worked on the hardware with my friend. My friend designed the
main PCB of the product. Now I wanted to bring my friend as a co-
founder for a couple of reasons: 1. They have complimentary skills:
hardware / PCB design. 2. I need a co-founder overall to improve
productivity and need different inputs on many things. The
problems: 1. Currently my friend can only commit 1 full day per
week. Future commit depends on how things go. 2. I started the
project long before my friend started helping design the PCB.
(about 2 years before). 3. The software work is far more than the
hardware work in this project. 4. If I split the equity, say 10%,
for my friend as co-founder given their commit level. What happens
when they increase their commit level in the future, say to 50% or
even full-time commitment after one year. Note, my friend can also
write software. I.e. he is not hardware-only guy but so far only
did the hardware work in this project. My question is: what are
the recommended methods of equity split for my friend as a co-
founder in this case? Here are some points I collected so far: 1.
Some say 50/50 split is good in general because it provides the
sense of equality. 2. Some day 50/50 split is almost never good
because it can cause deadlocks. 3. Almost everyone says vesting
over years (4 years?) is good, and 1-year cliff is good. 4. I've
read a book called "Slicing Pie handbook", but it seems to me it
requires a lot overhead to get it right. I was also wondering: is
there some well-known method that is more dynamic than the fixed
percent split, and also less dynamic / simpler than the "slicing
pie" method? Thanks!
Author : askhn2023
Score : 14 points
Date : 2023-07-12 20:29 UTC (2 hours ago)
| JohnFen wrote:
| This is just me, but my personal policy is that all splits like
| this have to be equal. With two people, 50-50. If one person
| isn't contributing (or expected to contribute) enough to make
| that acceptable, that person shouldn't be a partner.
|
| The reason for this policy is that I've seen far too many
| companies go under because partners start fighting about things
| like who contributed more and so deserves the larger share.
| That's utter poison to a partnership (particularly if a partner
| is a friend, which is a whole danger zone all by itself) and
| business.
|
| Better just to say "we split everything equally" to avoid fights
| in the future when circumstances change.
|
| I am not suggesting this is the best way to handle it. It's just
| the way that I've arrived at, and it's worked very well for me
| for decades.
| kmos17 wrote:
| Based on my experience it's highly dependent on the situation and
| especially on the personalities involved. One of the strongest
| human emotions is the resentment people can feel when they
| perceive a deal as being unfair. So if you can come up with an
| arrangement that you both honestly feel is fair then that is
| ideal, and maybe that is a 50:50 split or maybe not, that has to
| be assessed on what you both think is the value of your
| contributions today.
|
| I've had a 50/50 split that worked beautifully because we
| complemented each other in our roles, we were committed and there
| was trust (so even if the workload wasn't always equal it didn't
| create any resentment.)
|
| But I look on that as the rare ideal exception, I think giving a
| 50 split to someone not willing to commit is a formula for
| possible future problems.
| iancmceachern wrote:
| This is the single most important comment and answer you will
| receive. The details of the deal matter little, what matters is
| that you two remain aligned and motivated to see it through. I
| speak from experience being on both sides, keeping good,
| positive blood between you two is all that matters and that is
| what got you where you are, and will get you where you want to
| go
| renewiltord wrote:
| Some quick notes:
|
| - it doesn't matter how much time you spent on it, look forward
|
| - incorporate first, very cheap
|
| - you will have to set up a vesting schedule for yourself
|
| - you can use a calculator like this to inform you of the roles
| you'll have in the future https://foundrs.com/ (number doesn't
| matter, but look at the questions)
|
| - you will have to set up a vesting schedule for him
|
| - if you can acquire the hardware IP for the company, just do
| that (you will have to raise to do this - don't spend own money -
| but it will be hard without the IP in the first place, so maybe
| precommit to price)
|
| - I have no faith in part-time founders. Among my network of
| people running venture-funded startups, 100% worked full-time on
| it from incorporation. People worked part-time, but you were
| either in at incorporation or not.
|
| - in practice, what you have to give away in equity is
| replacement-cost
|
| - in practice, you currently have a company worth 0 and every
| person you bring on should change the EV up.
|
| - you can hire this person as an employee and then provide equity
| commensurate and then issue more for when they come on full time
|
| Sorry, not entirely useful but hope what's there helps.
| xyzzy4747 wrote:
| Never, ever give equity to a part-timer.
| drx wrote:
| My two cents:
|
| - The equity split is about incentivizing/rewarding you both for
| the work ahead, which is going to be much harder than anything
| thus far
|
| - I would treat the 2 years as a sunk cost
|
| - If you are true cofounders, 50/50 or 51/49 is the fair way to
| go
|
| - Vesting diffuses the edge cases (either of you leave early,
| either of you turn out to be flakes), and is a necessity if you
| want to ever raise VC money
|
| - It sounds like there is a question of him working only part
| time. In this case he should not get founder equity. Read the
| clerky docs as there can be severe drawbacks of granting
| significant amounts of equity post-founding
| paxys wrote:
| IMO someone who cannot work on the effort full time cannot be a
| co-founder and equal partner. If your friend wants to start off
| as a part time employee or consultant then they should be given
| equity accordingly. If they want to increase their role in the
| future then you can always give them additional grants.
|
| Being equal partners with someone but contributing five times as
| much work into the company as them is a recipe for disaster.
| alfalfasprout wrote:
| Remember-- 50% of 0 is 0. Your initial founders should have a
| vested interest in the success of the company. If you believe
| someone is important enough to bring in at this very early stage,
| then no I don't think 10% is enough even if they're part time.
|
| 70/30 seems reasonable based on what you described.
| helph67 wrote:
| There's a tale I recall of 3 hobos who pooled their funds so they
| could jointly buy a loaf of bread. They too faced this dilemma
| until one of them pointed out that the purchase was only possible
| because all 3 contributed.
| notahacker wrote:
| If your friend's time commitment will depend on how things go
| (and presumably your startup's ability to replace income he
| currently earns working the rest of the week) and you regard
| yourself as having done most of the work so far and expect this
| to continue in the near future, it sounds like the actual
| relationship you are both looking for is closer to paid
| contractor than cofounder
| iSloth wrote:
| Assume your friend does no more than a day a week, and in 5 years
| you're worth a huge sum on money - what percentage do you think
| would fairly reflect his reward, that's the percentage you should
| give now.
|
| If you give 5% for example, there's no reason you can't give more
| in time based on increased input, but don't give something you'll
| regret in the future.
| askhn2023 wrote:
| >> If you give 5% for example, there's no reason you can't give
| more in time based on increased input, but don't give something
| you'll regret in the future.
|
| What would be your method to "give more in time based on
| increased input"?
|
| Say now I give them 10% equity based on 1 day per week
| commitment. What's your suggestion if after 6-month, they
| increased to 3 days per week commitment?
| bgirard wrote:
| You can negotiate that with them either ahead of time in an
| agreement, or when they are able to commit more time. It
| should be in both your interest to negotiate that in good
| faith if the startup is doing well.
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(page generated 2023-07-12 23:01 UTC)