Left my startup pre-launch. What percent equity is fair?


4

6 months ago I quit my job to start a startup with two other people. I'm the business guy. I worked full-time on the project from day No. 1, and made substantial contributions to branding, customer development and biz development among other things.

Recently things came to a head when it became clear to me that the business partnership would not work out long-term. I ended up resigning.

Now, the situation: Legally I own 1/3 of the company since we didn't do proper vesting. This was at one of the other founder's request. The other founders are now offering me equity in the low single-digits even though I technically own a third. Considering all the work I put in and that I took on so much risk, this seems far too low to me especially since I know I am legally entitled to much more.

So my question: What is a "fair" percentage of equity to account for the work I put in? I am also contemplating staying on as an advisor since I still believe in the product and would like to see them succeed.

Finally, what about asking for cash compensation? We've earned a small amount of revenue over the last few months, although not nearly enough to compensate for the time I've put into the project. With current market rates, I estimate I could have garnered ~$60K in a "normal" job over the same time period.

Thanks!

Co-Founder Equity Legal Founders Vesting

asked Apr 30 '13 at 08:23
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Ileftearly
21 points

2 Answers


4

If I were the other members of the team I would be interested in buying you out.
A reasonable number might be $30,000?

You could have earned $60,000 at a normal job, but instead you took a risk and you are now folding your hand - so I wouldn't expect you to get paid more than you would have if you took the safe route.

Also, you are leaving the company before it has been proven and it is still volatile and doesn't have any traction. I assume you are leaving before it has enough money to pay all of the employees a "normal" wage. So, it is possible the company could still fold 2 months, 6 months, a year or so from now leaving the rest of the owners with 0 and having them put in even more work.

Therefore, being sensible and logical about it I would try and buy you out or put you on an agreed upon payment schedule to buy your 1/3 shares back at some agreed upon value. $30,000 is just a number I'm making up, but I don't think it should be the same amount you would have made at a 9-5 taking the safe option.
You gamble and win or you gamble and lose, and leaving early means you lose.

How much money have you brought in, how many sales have you closed, how many actual deals where money has changed hands have happened due to your direct efforts?

As far as equity goes versus getting paid for your shares, I think somewhere in the single digits sounds appropriate.

You are leaving before success. Even for your past efforts the company's "success" will be made by those still working in it and building the business. It's possible their breakthrough idea or moment will be a pivot upon what they are working on and might not even look like the company you belonged to.

I wouldn't be greedy about it. Let them continue their dream and you can pursue yours.

answered Apr 30 '13 at 11:50
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Ryan Doom
5,472 points
  • Thanks for the thoughtful answer, Ryan. For the record, there were no other employees—just the three of us. The company is boostrapped so doing a buyback at ~$30k right now is probably not possible, but your suggestion to do a buy back later is a good option. To answer your question, revenues are small: – Ileftearly 6 years ago
  • It's tough emotionally. I can understand wanting to get a decent percentage for your year of hard work. But there is sooooo much work left to do in the start up, future rounds of funding that may need to happen, who knows. That taking a large % would be bad for the company, bad for your relationship with your friends/startup mates, and may make it harder for them to succeed. ~5% or some cash payout over time would probably be best. – Ryan Doom 6 years ago

2

Perhaps you could calculate the percentage based on what it would be if you did include vesting from day one. Considering that you left after six months typically you would get nothing because most vesting kicks in after one year. (E.g. 25% after first year and 25% each additional year prorated monthly.) However, you could consider a vesting schedule, e.g. 10% after first six months, 10% after next six months, etc. With that you would have 10% of the one third or 3.3%.

That's the basic idea - make up a vesting schedule that seems fair, prorate and use that. It may be how the other founders came up with the low 3 digit offer and in this way it makes sense.

Considering you are legally fully vested you could fight for your one third (that is keeping an equal share with the other founders) but your question is about fairness so that scenario doesn't seem to fit.

answered May 3 '13 at 07:17
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Lacodajeff
21 points
  • +1 yeah good point, this is probably how they calculated it. I like it! – Ryan Doom 6 years ago

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