Splitting equity between founders


1

X was working part-time on an idea and after about a year and a basic demo in hand, he talked to two potential people (A and B) who would become co-founders but would work part-time just like X. The split that they talked about was 20% for A and 30% for B (two years vesting) and X retained 50%.

After about a year they worked and build a MVP and have potential customers who are interested in using this. But for some really weird reason A and X can not continue working on it (they are not leaving by choice), leaving it to only B. X has completed almost two years and A and B have completed about a year.

Given the two year vesting schedule, X has 50% and A has 10% (due to vesting) and B has 15% (he will get the next 15% in the coming year).

How do they now carry things forward? How should B's work be valued for each that we works on this project. There is a potential plan to bring developers / business guys as and when needed.

The proposal:
For each year that B works on this (part-time), he gets 15%, 12.5%, 10%, 7.5% and so on %. The idea is that the more the contribution from others including B, the more the share they get and the original % of X and A keeps going down. This is a way to penalize X and A because they are not working on it any more. For all the others joining the team, it would be a 2 year vesting for whatever share they get (until company is ready to pay salary)

As an example:

P 0.00 15.00 12.50 10.00 07.50 <- extra % for B

Y 01.00 02.00 03.00 04.00 05.00 <- Year

B 30.00 40.50 47.94 53.14 56.66 <- % for B

X 50.00 42.50 37.19 33.47 30.96 <- % for X

A 20.00 17.00 14.88 13.39 12.38 <- % for A
What do you think of this proposal? Is it reasonable for B to work on these terms, given his past contribution is same as present

Getting Started Co-Founder Ideas Equity Founders

asked Jan 29 '13 at 19:53
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Vibgy
6 points

1 Answer


0

B should continue to work at his per-week labor value unless the value of that labor increases. As it stands, for each week B has worked to date, he has earned 0.288% of the business (after one year, he owned 15%; after two years he would own 30%). That amounts to a little less than 1.25% per month. This portion should be deducted from both X's and A's shares, either equally or proportionate to their remaining share value (which is easy to calculate with a spreadsheet).

I suspect this is fair because the "penalty" charged to X and A will be the decreased acceleration of the company's value due to the loss of their labor. You don't anticipate B to make up for both X and A in terms of productivity, do you?

If a larger portion is given to B in exchange for B's labor, then that extra is exceptionally generous. It wouldn't be unfair to give that interest to B, except perhaps unfair to X and A.

By the way, I think that X currently owns 75% of the company, not 50%. If A owns 10% and B owns 15%, the remaining 75% probably belongs to X (if it doesn't belong to some other unnamed entity).

answered Mar 4 '13 at 08:11
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Chris
91 points

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