Joining a startup


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Possible Duplicate: Forming a new software startup, how do I allocate ownership fairly?

Apologies for the lack of brevity, but I wanted to give you a full picture of the situation. Appreciate you taking the time to skim and your feedback! Thanks!

Situation:
I am negotiating compensation for a position of Director of Bus Dev/Customer Analytics at a startup. I am looking for a larger share of the equity (not a salary), and see myself as building the business (i.e. cofounder not employee).

The Founder sees me as his #2, but made an initial offer (which I turned down) that was market salary + 2% equity (anti-dilutive). He is willing to take it to ~4-5%, but I still don’t consider that to be fair, given that the value of this startup lies in scaling it up and my role would be critical there (he agrees). What is fair for me to ask?

Specifically, my questions are :

  • How much equity should I ask for (is “fair”)?
  • Is it fair for me to ask for the cofounder title?
  • What is the investor perspective on non-dilutive equity, which the Founder wants to offer to the Management? Will they seek to overturn down the road for it being unreasonable?

Relevant Facts:

  • The startup is seeking to solve logistics/delivery problem in a developing market. The target customers are e-commerce players
  • The startup currently has the following setup:
    • 1 founder (driving the whole startup to date; decent not steller industry experience, but smart. Par for the course in the startup scene in this region, where the ecosystem is still pretty young and composed primarily of management consultants/bankers taking the jump to start their own busineses)
    • 2 seed investors/partners (helping part time, with no envisaged involvement fulltime)
    • 4 developers (working on a salary basis)
    • 2 Directors who are expected to join at the same time as me (have signed contracts). They are more happy to work for market salary with some equity (1-2%), so are really employees.
    • I would be the third director (of customer insights and business development, in addition to temporarily running finance until the CFO is hired), and the Founder has made it clear that he sees me as his #2 in the firm, really driving the business. As a result, he is willing to consider offering me the cofounder title and more equity than the other directors. Question is how much should I ask?
    • 3 C-level positions are envisioned in the FUTURE (with 1-2% equity each and market salaries), which leads me to question my position as #2 at the company. I have highlighted this to the Founder and he sees me as reporting directly to him and is willing to commit in writing to that effect (for whatever it’s worth)
  • The proposed equity split as it stands:
    • Founder: 50% (2 year vesting)
    • VC/Investors: 20%
    • Management: 10% (anti-dilutive; the founder sees himself ) (2 year vesting)
    • Strategic Partner: up to 10%
    • Other Seed Investors/Partner: 10% (no vesting - this does not seem right since their effort to date/going forward does not merit this amount, especially compared to management that is still taking a risk)
  • The Founder has been working with a team of developers (with some seed money from friends and family) for the last 4 months to get the product ready, with still a couple of months ago to launch
  • The startup is near signing up 3-4 customers on a fee + revenue share basis pricing model (with 4-5 other customers in the pipeline). This is not surprising given that the problem being solved is a very real one (assuming we can solve it). Of course, there is still product risk.
  • I do not have full visibility into the company/product and if it can REALLY solve the problem, partly because I don’t have full access to the information (and not sure if I can ask him to open the kimono all the way without any commitment from my side?), and partly because I am not a domain expert in the space to know if THIS will really solve the problem. So, I am hesitant about not having the full picture I would get in a typical cofounder situation.

Co-Founder Equity Compensation

asked Nov 18 '12 at 21:45
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Aj Yusuf
1 point
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  • AJ, welcome to the site. Please see the linked question re equity splits. You have one other minor question in your post re "investor perspective on non-dilutive equity". You can either edit this question to focus solely on that issue and we will reopen it, or you can post a separate question. – Zuly Gonzalez 8 years ago
  • Thanks Zuly. I had reviewed the linked response earlier, and thought that while it gave good general guidance, it was focused on friends negotiating among themselves vs. my situation, which is negotiating after the startup has already been in existence for sometime. Is there another link I can look at that answers that specific question? – Aj Yusuf 8 years ago
  • We have a ton of questions regarding equity splits, but unfortunately they're not organized as well as they should be. Take a look at [this question](http://www.brightjourney.com/q/divide-companys-equity), as well as the questions linked in the right sidebar of that question under "Linked" and "Related". Also check out the [questions tagged with "equity" and "co-founder"](http://answers.onstartups.com/questions/tagged/equity+co-founder). – Zuly Gonzalez 8 years ago
  • Lastly, if you still feel your question is different from previous questions, I suggest you edit it to focus on the differentiating factor(s), and we can look at reopening it. Some tips: 1) Shorten your question - your current question is too long to read, 2) Spell out how your situation is more complex than the typical equity split situation, 3) Don't just ask "what is a fair equity split", ask "how you would go about figuring it out" - that way you can apply it to future ventures, as well as be useful to future visitors of the site, 4) Use the title to re-emphasize your question. – Zuly Gonzalez 8 years ago

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Co-Founder Equity Compensation