How much equity for co-founder reducing role for academic program?


1

I'm a technical co-founder in a pre-funding company in a niche tech segment, working with two non-technical co-founders who have largely overlapping skill sets. I met them at a networking event and joined full-time on the project two months after they started it. We are all first-time entrepreneurs. As background, I previously worked as an engineer for a startup in the same tech niche for salary + benefits totaling about $150k (plus stock options).

We have all worked for no pay in my first six months with this company, although it has been agreed that I will receive an insignificant cash amount soon (<10% of market salary). I have sacrificed my time, health, and relationships for this company, spending almost all my waking hours working. I have remained committed to the company, turning down several very lucrative employment offers. To date I have produced a full working prototype that will soon be ready to launch to customers. Besides being the sole technical contributor, I have also played a significant role in product and business strategy and have brought in many contacts that have turned into useful advisors and key sales leads.

The twist is that in my first couple months with the company, I also applied to an extremely prestigious one-year academic program at a top university. It was my dream for years to complete this program, which will make huge connections for me and take my career to the next level in this industry. I was transparent with my co-founders the entire time about applying for this program, but while I didn't expect to get in, I told them I would defer it if possible (which turned out not to be possible). Long story short, I got in and accepted the offer. This is a program people do not say no to, and I am certain that it will in the long run increase my value to the company and bring in great connections. In the meantime I have promised to find someone to replace me as the main technical contributor for this time.

It ends up I'm going to have to start this program just before my first anniversary with the company. However, I intend to remain committed to the company as much as possible during the program and full-time again after the program. I initially signed a deal where my equity stake was much less than that of the other co-founders as a concession to the company since they didn't really know me coming in. The deal was that we'd re-negotiate after prototype completion, and I would have expected an equal (33%) share at that point if I weren't doing this program.

My co-founders have made it clear that they don't want me to vest any equity after the one-year cliff if I am going to "leave" for this program. I am OK with that, but I think that one year's vesting of a 1/3 equity stake (roughly 8%) is more than fair, and if I take less than that, I would like to receive significant cash compensation for it. I personally feel that that's a steal for them given the magnitude of my contributions. My co-founders, however, think that I should be left with only a miniscule percentage of the company and nothing else. That seems extremely unfair considering the massive risk and effort I've put in to this company (and will continue to put in). Who is right here? Am I already lowballing myself?

Co-Founder Equity Technical Compensation

asked Feb 17 '13 at 15:07
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User25060
6 points
  • it sounds to me they're trying to squeeze you out after you've done most of the work, considering no sales were made and no funds were raised while you built the entire product, that's damn impressive and sounds like 33% is an insult considering your other options so 8% is a slap in the face. If you don't have legal documents signed with them, I'd be very hesitant on providing them the code. – Itai Sagi 5 years ago

2 Answers


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Couple of critical details still unknown, but have those two provided all of the cash funding to date? If your company's primary product is what you are developing then being the only tech founder with 2 non-tech founders sounds absolutely terrible. I can't possibly imagine what 2 of them could keep busy doing all day in the first year, they should have started to learn how to program ;)

From what you are describing 33% equity at this point in time seems perfectly reasonable, after all in my opinion (as a developer, business owner and entrepreneur) you have done most the work. Agreeing to 8% when leaving seems to be a reasonable negotiating point. Or you could do 0% and agree to something else like them paying you $XXX,000 over some period of time if the startup continues to survive to pay you for your contributions.

Typically there are some documents signed between partners that would outline the exit strategy should one of the partners want to leave or in some cases need to be kicked out but I imagine you don't have anything very official?

Did they provide all the funding then?

How many customers have they found that have committed and pre-purchased the product?

I can't imagine what 2/3 of a tech start up company would do during product startup phase. Typically most successful tech startups start with 0 or maybe 1 non-techs. They just aren't worth that much, unless they have lots of money. :)

But 8% seems like a very reasonable offer from you to them if can find them someone suitable to take over, and help them here and there when possible. In general it's going to be very difficult for another single developer to take over for you. You have so much domain knowledge of your industry and of your code that the new person is going to have a tough time working with the 2 non-technical partners. Although, without an agreement between you guys outlining what would happen in a situation like this, it could get tricky unless you come to an agreement that everyone likes.

answered Feb 18 '13 at 02:27
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Ryan Doom
5,472 points
  • Thanks, Ryan. Yes I have developed our sole product myself (+ our website). We have bootstrapped and stayed lean so far, with the other guys putting in slightly more $ than I have. The non-techs have been mostly out building relationships and selling the vision (no deals signed yet, but getting close). One of them has also designed much of the UI. I have also spent time selling and brought in the company most likely to become our first customer. Agreed it'll to be tough to find a replacement developer + domain knowledge, but my continued part-time contributions should make up for that. – User25060 5 years ago

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Having been a simi-tech founder in basically the exact same scenario, I think you're lowballing yourself (assuming you've really done what you said you've done and you will actually continue to contribute a fair amount while in this program). I started a company with two friends that flopped, but we're better friends today then we were when it started two years ago. I was marketing/web/product designer and I can tell you that no one worked harder than our dev guy. I wouldn't have let him have such a small share as that with the work he put into it. Here's what I would recommend doing:

  1. Commit to some number or reasonable hours per week while in this program 10, 15, maybe 20.
  2. Bring in another dev guy and take on more of a dev leader/product manager position.
  3. Insist that you get your 33% in order to get your part of the job done. Once they give that to you, give the other dev guy a cut of your 33% as his compensation. I'm thinking you end up with 23% and he gets 10% to work full time. He didn't start it, and if he's worth anything he'll understand that a cut like that is very fair considering the time and money you've invested and are continuing to invest.

The point is, if you can uphold your end of the deal (whether doing it alone or bringing in others to help) then you should get your 33%. If they aren't willing to do that, they probably were never intending to do so in the beginning and you should consider whether or not you want to do business with them. Hope that helps!

answered Feb 18 '13 at 15:34
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Jeremiah Prummer
441 points
  • Thanks, Jeremiah. I actually proposed your suggestion with 20 hours a week and 20% rather than 33%. Sounded really reasonable to me. They didn't consider it for a second and said the initial offer was the only option. Oh well. – User25060 5 years ago

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