Renegotiations with my co-founders: how big a stake?


5

Three sentence history: I was brought in on an opportunity by the original "idea" person. After trying out a few others, there ended up being a total of three of us. The initial project was going to require significant capitalization from external sources (none of us had real money for the materials needed), and being my first negotiation I accepted a very small stake (with strings for a couple more points if profitability didn't turn in the first two years).

After a few months we realized the idea just wasn't going to work and settled on one that requires (related to the first project) trivial startup money.

Current facts:

  • Original idea person holds almost all of the startup.
  • We've all put in about the same amount of time.
  • We'll all be investing about as much as each other.

My question: As we're settling into researching and codifying a business plan, I feel I should be renegotiating my stake in the startup before we get too far along. Should I be shooting for a third of the company or is that unrealistic?

Co-Founder Equity Negotiation

asked Jan 14 '11 at 10:34
Blank
Matt
180 points
  • It sounds like you won't be happy (and it would not be fair) if you were not getting that much - so yes, renegotiate. Otherwise it will poison you and the project. This is assuming it is a totally different direction/product/etc. – Tim J 9 years ago
  • Same market and mostly the same primary audience, but yes, very different business sector. Good point on it poisoning me to the project - I think that's started already. Thanks! – Matt 9 years ago

2 Answers


4

I would shoot for a third, or close, because to some degree you are starting over at this point. If you all are adding equal shares of everything you should get an equal share of the stake in the company.

However, someone should have just a larger enough amount of the business so that he is more liable than the rest. That would technically make him the boss, but sometimes executive decision will need to be made. The outcome will be his responsibility and he needs to know that when they get more of a share. Could do 30/30/40 as an idea.

answered Jan 14 '11 at 10:41
Blank
Percent20
322 points
  • +1 This is a good answer. Remember: The original idea isn't the startup. The startup is the idea as it evolves over time. And that is hopefully something that you all contribute to. Also, you never know who contributes most down the line. This early on, splitting equally is the decent thing to do. – John Sj√∂lander 9 years ago
  • I would have voted up but the second paragraph is holding me back. – Tim J 9 years ago
  • @Tim I can understand that. Reason I added it is because I have seen business deals go awry because no one was owner and an issue is deadlocked so long it destroys relationships and opportunities. Whereas if someone can have the final say, and something to back it up, things can be expedited and "i told you so's" if necessary can be spread around. In general I am hesitant about partnerships, but this is the caveat me personally i'd have. – Percent20 9 years ago
  • I understand if it was 50/50, but 33/33/33 seems to me that there is no tie. There is either a majority or not. – Tim J 9 years ago
  • I can see that. I still wouldn't do a partnership personally, but I can understand your point. – Percent20 9 years ago

1

It seems like you might have made a bit of a strategic mistake

We've all put in about the same amount of time.
We'll all be investing about as much as each other.

What I mean is that if the guy was the owner, shouldn't he have been the one to be pumping money into the organization?

The original owner might think: From a leverage stand point, I own this piece of property, you give me money to support it. If you are just giving it to me or the corporation, I don't "officially" owe you anything.

I guess what I'm saying is that it might have made more sense to say I'm giving you this money for some share of the company. He probably might have said no way and you might have then decided not to give him the money. Most people won't turn down "free money"

From a "fairness" stand point, I think you would be expect to be reiumbursed for the money you put in or get some sort of ownership rights. However, I don't think the has any obligation to do either right now.

I would use what you bring to the table as leverage or walk. I think it's fair for you to ask for some ownership in the company if you have equally contributed. However, if he holds all the cards, you would need to be prepared to walk.

answered Jan 15 '11 at 06:23
Blank
Scott
468 points
  • I think I wasn't clear in the money bit, there. There's been essentially no money put into it yet, so nothing has, as yet, been given away. But great insight nonetheless, because if I don't pull what I'm looking for in the renegs I could, though potentially expensively, buy more as we infuse capital. – Matt 9 years ago
  • And the other bit is that I love the idea, which sucks, as the company (well, the three of us) pretty much own it though a non-disclosure, which I intuit means I'll have trouble if I walk away and then build the product myself. – Matt 9 years ago
  • I think the main thing you are looking for is "fairness." You think that 1/3 seems fair b/c you are 1 of three. Perhaps some other arrangement might be fair such as 40, 30,30 like someone above mentioned. I think you need to sit down and clarify what value you bring to the table and explain to #1 your thoughts and feelings. – Scott 9 years ago

Your Answer

  • Bold
  • Italic
  • • Bullets
  • 1. Numbers
  • Quote
Not the answer you're looking for? Ask your own question or browse other questions in these topics:

Co-Founder Equity Negotiation