Startup Co-Founder Stuck in a Tricky Equity Position


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I'm an entrepreneur and programmer stuck in a pretty tricky situation.

So here's the situation:

A couple friends and I decided to create an internet startup (website and iOS Application) in hopes that it would someday take off. We decided to hire an engineer, since I was busy on a few other projects (some of which already launched and took off...one was acquired last week).
Long story short, that engineer flaked on us and now we're in a lawsuit with him to get our money back. Things are looking good for that, thank God.

Anyway, at this point the equity was split 40 - 40 - 10 - 10. 40 to me, 40 to my partner, 10 to a marketing guy and 10 to a designer. Not the ideal amounts, but we're young and money has never been important to me. I like building things better.

With him flaking on us I decided to take the reigns over on development for the summer. Things are going good, however I can honestly see how I'm spending a lot more time on the product than my partner now. So what do I do?

The idea was an equal collaboration for the most part but I am clearly spending more time on the product with programming, collaborating with the designer, etc. He's more of a financial / smart guy / middle man. I of course want to keep him in the project but do you think I should change the equity up a bit or keep things the same to avoid argument.

Thoughts? Opinions? Tips?

Equity

asked Jun 6 '13 at 15:04
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Asg
53 points

3 Answers


2

I found the best insight on the topic in the book of Mike Moyer Slicing Pie.

He makes the point that it is most important that everybody is felt treated fair. I would honestly talk to everyone involved to know what they would find most fair.

Does everyone agree that you spend more time? That you should spend more time or maybe hire someone to help out? There are many scenarios but as long as everyone has this feeling, thing should work.

On the other hand, if anyone loses that faith, there is nothing more important than to restore that feeling or else the whole project could be in danger. In which case 10% of nothing would be equal to 40% of that same nothing. Good luck!

answered Aug 24 '13 at 16:27
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Dmitri Zaitsev
181 points

1

No one here can tell you what you should do or shouldn't do.

What you need to think about is how much effort and risk did he put in to get into this project? What is his tasks going to be once the product is launched vs. your tasks? If you really think he's spending less time on the project than you, you should talk to him. Maybe he has something going on. Either way, if there is a written equity agreement than you're likely not going to be able to get it changed easily. I wouldn't give up my equity just because you thought I was doing less than you, when after launch I'll be doing more than you. Without sufficient details like that we can't really answer the question.

You also need to think if a 10% difference in equity is worth the friendship.

All of this should be covered in paperwork already though. There should be ways built in to adjust equity based on performance over a period of time.

answered Jun 6 '13 at 22:52
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Randy E
632 points

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Renegotiating the equity right now is a hard thing to do, and is really messy to accomplish.

Normally, people working full time gets rewarded through faster vesting. Do you have vesting in place for your shares? If not, can you arrange to set it up? That would be a smoother/cleaner way to do it. Your reward for working more would be faster vesting.

The second thing to do would be to start thinking about paying yourself a salary of some point, even a relatively small one like $2,500 a month for full time work or something. This will be the second way to make sure your extra time commitment is being rewarded.

I would agree with you that it may not make sense to renegotiate the equity now. If you do want to have the conversation, make it friendly and open ended. Say 'hey, I'm working a bunch more right now that you are, and we still have the same shares, what should we do about it'? And then listen to your partner's point of view. If you are good reasonable people, who want to treat each other fairly, your partner should respond with something that sounds sensible ... especially since you may apply the same to him later.

answered Aug 24 '13 at 04:28
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Kamal Hassan
1,285 points

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