How to distribute equity between founders?


1

Three of us are starting up a new company.

Partner A brought the original idea. He also has the IP, the development of which was paid for by a third party. Moving forward, A will only dedicate 10% of his time to the company (and has for the past six weeks).

Partner B has invested significant effort on the technology and has manufactured a prototype, being compensated by a third party. He will dedicate 50% of his time to the company (and has for the last six weeks).

Partner C didn't develop the technology. He joined recently and is organizing the business case and finding strategic partners. He will dedicate 100% of his time to the company (and has for the last six weeks).

What would be a fair distribution of equity between A, B, and C?

Thanks,

Arnaud

Equity

asked Sep 28 '10 at 07:43
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Arnaud
6 points

3 Answers


1

1/3 each works for me

answered Sep 28 '10 at 10:42
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Tim J
8,346 points

0

Companies that don't have full-time founders focused on building the venture tend to fail. It is often difficult to raise money or recruit top talent when the founding team isn't working on the venture with all their energy and resources.

Six weeks isn't a long time; certainly not long enough to estimate the long term commitments or working relationship quality.

Regardless of how you split it, have vesting in place.

answered Sep 28 '10 at 12:16
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Mitch
659 points
  • Companies with full-time founders fail at high rates as well. I would not count that as a primary factor. – Tim J 8 years ago
  • I guess what I really meant was "fail before getting a customer or shipping a product". – Mitch 8 years ago
  • Thanks for your contribution. We have shipped several products over the past few years (the technology was developed in 2004 and has been refined ever since) but, because of a lack of a sales structure, we haven't gone into full-blown commercialization yet. Am I wrong to think that it is OK to have neither Partner A or B—whose expertise is in the technology not in marketing, sales or operations—100% involved in the commercialization effort? – Arnaud 8 years ago
  • If it's working for you, that's great! My experience is different. I'm more of a hard-core all-or-nothing kind of guy though. :-) – Mitch 8 years ago

0

No one here will be able to provide a good answer because there's just not enough details.

The only way I can see you guys figuring this out, is to translate everything into money.

50% of B's time is worth this much, and 100% of C's time is worth that much, and the IP is worth X and developing a prototype is worth Y.

Otherwise, it's all guess work. Except for the worth of the IP everything else should be pretty easy to quantify.

answered Sep 28 '10 at 13:23
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Dror
1,833 points
  • It does not matter what people value their time at. What mater is what they contribute and their motivation. After only 6 weeks none of them have much skin in the game and it seems only outsiders have put in money. – Tim J 8 years ago
  • Not how people value their time. How the market values their time -- what did they make in their last job or current market rate. An hour of an experienced system architect != an hour of a fresh out of college developer. – Dror 8 years ago

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