Dividing equity among cofounders when one person is doing most of the work


1

I shared my startup idea with two of my best friends and it seemed like a great thing to do at the time. The entire thing basically revolves around a particular kind of content and let's just say that they're pretty good at creating that sort of content. I'm not too bad myself. However, I'm also a developer, and a designer, and I have been the person who has spent maximum time and effort into the thing, both technology and effort wise. Additionally, while I can do both content (not as well as them) and developing/designing, they can only do content.

Obviously, they want a thirds-split. Normally this would sound fair - developers (such as me) tend to be egoistic and look down upon nontechnical people (or do they?) but in this case, I feel that giving them that much importance isn't worth it because:

  • The website will have user generated content as well.
  • I've talked to other people who're better than my cofounders and are willing to work for free. Literally.
  • It would be really unfair for them (the people mentioned above) to not be paid anything and watch my cofounders walking away with everything.
  • I don't feel that they're as dedicated to the whole idea as I am.

I really have no idea about how I should handle this situation. What should I do?

Co-Founder Equity Website Shares

asked Feb 12 '12 at 20:44
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Aviraldg
111 points
Top digital marketing agency for SEO, content marketing, and PR: Demand Roll
  • You need to talk to them. I'd probably just go with 1/3 split assuming they dedicate the expected time and contribute well. Put in vesting for all of you. It appears that you are re-negging on a deal. You should have defined the terms up front. But now that you have their work you want to shortchange them. Not cool. You are mostly to blame here - not them. You created the problem and it is fair for you to work out something that makes everyone happy. – Tim J 8 years ago
  • They haven't done *any* work yet. The maximum "work" they did, was offer their opinions on design mockups and UX charts which were also shown to a lot of other people. – Aviraldg 8 years ago
  • in that case then cut them out since you already have doubts about working with them. Or ask them what they want and explain that you can get others to work for free. But understand that you will get what you pay for... – Tim J 8 years ago
  • Take a read of @Joel Spolsky's answer here: http://www.brightjourney.com/q/forming-new-software-startup-allocate-ownership-fairlyNick Stevens 8 years ago

2 Answers


3

First, and this is tough advice not often heeded, don't go into business with friends unless you don't really care if you're friends a year from now. "Two of my best friends" sounds like a huge red flag. You probably won't take my advice, and if you do this venture you'll look back a year from now, and go "Oh, yeah, that guy warned me." It's like telling a friend the girl they're with (or guy they're with) is no good for them and it'll never work. The advice falls on deaf ears.

Anyway, if you can hear me in there, you're right. Basically, it was your idea. If you don't do it, they're not likely to (sounds like they have neither the technical skills nor the inherent motivation). Search out the million sites and quotes that say never go into business with your friends (don't just take my word for it), and tell your friends you care too much about you friendship to go into business. If you do, it will end badly for all parties. Maybe they'll be mad, or annoyed, but it's nothing compared to what will happen.

Then, execute your idea (consider angel or other funding to turn it from pipe-dream into reality if you're serious or the barrier to entry for competitors is low) and tap the other ppl who can create the content. Start a buzz. More importantly, get the initial contributors to start a buzz. Read The Tipping Point. Influencers, like your initial contributors are key to taking off. Best of luck.

answered Feb 12 '12 at 23:55
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Austin Gaijin
29 points
  • Thanks for the advice. I'm thinking about the easiest (and best) way to break the news to them. We aren't exactly in the idea stage of implementation - but rather, we have a fully implemented app, and I'm hoping that "the people I mentioned" (for content) will be able to create a buzz. Thanks! – Aviraldg 8 years ago

0

I started a business with my best friend and his relative 8 years ago and we had a blast building a successful product and a profitable business, so the startup phase worked out for us. Life got in the way and I bought out both of my partners earlier this year. I would say that the key to creating a partnership is to have an upfront agreement about split of responsibilities and commitment (time wise), in writing! Early on you don't have much to "divide" so you aren't overly motivated to talk about details, especially when you work with people close to you - friends or family.

Some earlier advise posted was all about cutting off the partners-to-be, but that in itself could cost the OP a friendship. It's hard to start businesses from scratch and going solo is even harder. If friends have subject matter expertise and it's still possible to renegotiate the terms than it's not a bad option. You could easily build an argument about time spent so far and saying all signs point to you possibly doing bulk of the work so you want to structure a deal in a fair way. Tell them since you have a unique (and expensive) skill that they can't replace, you have no redundancy (think growing business and being in standby mode for any technical issues). Another way to "even out" on contributions is for them to supply initial cash for typical operational expenses to match your hours - setup (regi Co., etc), hosting, software licenses, accounting, tax prep, and the biggest of them all marketing (writing and distributing a press release, SEM, etc).

Besides renegotiating terms now, you could also agree that if some of you (or any partner) end up spending significantly more time than others in the future, that extra time will be counted as "loan to business", so when business is successful, that loan is repaid. Consult an accounting on this.

Getting partners (friends or not) that can take care of certain (critical) aspects of the business can be a deal breaker, especially if you have a full time job and work on your business idea/product on weekends. Will you be the one replying to all customer service emails 7 days a week all year around? Writing press releases and managing social media? There is more to building a successful business than building a site or an app.

Oh, and those people you mentioned that are willing to work for free? Doesn't sound like a sure thing to me. They could work on your content for building a skill or for self-promotion, but if they see value/demand in their skill they will try to get paid for it by you or others or when business picks up they will ask you to pay, or give them shares, or just wait and sue you later when you have some $ to show for all your hard work.

answered Feb 14 '12 at 22:25
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Webbie
2,835 points

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Co-Founder Equity Website Shares