I'm a part-time founder working with two full time partners. What is an appropriate equity share?


1

This is an update to a question I posted a few weeks ago.
Help would be GREATLY appreciated.

I'm a co-founder of a new startup with two other partners. We are just hammering out terms (equity share, vesting, etc) and are aiming to be signing an operating agreement and forming a C corp very very soon. I'm a designer and they are a developer and biz dev guy respectively. We've been working hard for the last few months to rollout a private beta version in the next month.

My partners are both ready to make this their full-time work, despite there being no funding yet. I, on the other hand, have very significant work commitments and am not ready to work on the startup in a full-time capacity. In other words, I'm hedging. I'll be designing the project and doing all front-end development for the foreseeable future, but will probably only be able to offer between 10-20 hours per week on the project. They will be doing up to 80 hours a week.

So, here's the question: considering I am a founding member, have been heavily involved in the conception and will be functioning (for the time-being) as a designer on the project - what would be an appropriate share of the total equity?? (with the 2 other partners full-time and holding equal equity) Are we talking 5% or 25%?

They've proposed I have 4% (vesting over 4 years) while they will hold 40% each (vesting over 4 years). No cliff. The remaining 14% would be an option pool for future employees.

This seems low to me considering I will still be putting in 40-50 hours a month and have already been very instrumental in designing a first iteration of the product and have been heavily involved in its conception.

Thanks!

Co-Founder Equity Part Time Founders Agreement Partnerships

asked Jan 6 '12 at 11:22
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Local79
21 points

2 Answers


2

First, have you tried my equity calculator? The fact that you are not committed when the other two are full-time is a major red flag. If the other two truly will go full speed on the idea, you'll be soon left behind. So in that scenario, yes 5% is fair.

The question I ask is always the same: what would happen to the project if you stopped working on it? If the answer is "it wouldn't make a big difference", then that's your clue right there.

Sometimes, the idea guy, without providing any hard skills (not a developer, not a business person), is still the leader, the person who makes things move forward, and who makes everyone else perform at their best. That person deserves a big share. It doesn't sound like it's you. If you are "tangential" to the project, expect a small piece of equity.

answered Jan 6 '12 at 11:39
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Alain Raynaud
10,927 points
  • Thanks, Alain. That's helpful. – Local79 7 years ago

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This question raises a very important issues. Is it the number of hours that count in business? I feel this a wrong approach. x hours of work by y, and x+2 hours of work by z can not be compared. Even both y and z are in the same fields, their productivity will be different. This approach in my opinion is faulty.

It is important to note how your idea or for that reasons, your contacts are bringing business? In case the user interface is not good, the programming will not bring a lot of value. It does not sound good business working 80 hours a week. The productivity is bound to suffer.

The next is how to overcome the situation. I feel the extra work the others are putting should be appropriately awarded considering their value to the business. They may be permitted to draw bonus or salary to the extent of their additional effort. It should be an equal partnership so far sharing is concerned. For additional hours, appropriate bonus must be considered.

In any case, 4%-40%-40% seems to be highly disproportionate.

answered Jan 7 '12 at 02:07
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Natwar Lath
294 points

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Co-Founder Equity Part Time Founders Agreement Partnerships