I am getting involved in a small start up - we have been discussing (3 partners) this for a few months and now is time to get everything settled.
We originally discussed a certain time allocation 4 -4 - 2.5 days a week and agreed to allocate extra salary to cover the differential (but this is on the books in year 1 we won't actually take the salary.)
My partners have decided that we all need to up our commitment to 4-5 days and pretty much out voted me. After lots of debating I am sure that for personal reasons (I am much younger and have much more family risk) I can't commit to the time they want and don't much like the role that they want me to do in the extra time.
I put a counter proposal on the table - I would restrict my role to my real value add in the business - roughly 1 day per week and add some cash to cover a guy to to the grunt work that I am opting out of. In addition I would stay an equal partner on the initial investment needed - this is real money not a few bucks here and there.
My partners value my contribution and would like me to stay in - they want me to take less equity for same investment. I feel this is unfair (discussed on this blog site) & think that the solution is to buy the guy for grunt work.
My "partners" are upset as this very low balls their time and of course they have both investment and time risk involved. They correctly state that in year 1 this biz is all risk - if we make it through 12-18months we are probably on our way to doing very well - so they need to be rewarded for taking an unfair amount of risk in their time whilst I hedge my bets in salaried work.
I am looking for a "reasonable" solution - not asking for favors and will (sadly) walk away if needed.....
What determines equity? - equal & substantial cash investment or time invested in year 1 - most other discussions seem to relate to recognising effort on low cash investment - here the cash is fairly substantial and up front to establish the company
I founded a startup in which the early "founders" worked different amount and also made cash contributions in the 5-10K range. I'm not sure how much cash investment you are referring to, but here are some thoughts:
You can read Joel's entire answer here Lastly, no matter what option you choose, vesting is a must. Typically 4-5 years with a 1 year cliff is standard. Meaning that anyone who quits before year 1 gets nothing. After year 1, each person gets a little more monthly until the 4-5 years is up. This typically assumes full-time work going forward.
What if one of the founders doesn't work full time on the company? Then they're not a founder. In my book nobody who is not working full
time counts as a founder. Anyone who holds on to their day job gets a
salary or IOUs, but not equity. If they hang onto that day job until
the VC puts in funding and then comes to work for the company full
time, they didn't take nearly as much risk and they deserve to receive
equity along with the first layer of employees
The situation your discribing is you becoming an investor not a founder. (mainly devoting money not time) That means that no your not necessarily entitled to an equal share. You need to agree on a fair percentage based on the amount of investment and the current value of the business. The problem here is valuing an early startup is very hard. I suggest you ask your partners what capital lump sum is x percentage worth.
On a separate note, I would urge you to quit your current job and go in full time. It sounds like you have some cash so could use some of that as a safety net. Your partners seem to want another founder rather than an investor and you will be much more involved in the business if you take that leap.
Good luck whichever way you choose!