Joining a 1 year old startup as a late co-founder, what should my equity be?

[biblequest]

Currently this bootstrapped business started with 2 co-founders with the 50 50 split in ownership. After a year, they have made some revenue and are expecting to triple this year. Hence they plan to expand with 2 additional co-founders to help accelerate the growth.

They are expecting these late co-founders to work the same amount of hours as them and to provide equal value to the company with the special skills that they have.

My question is if 15% is considered a fair percentage of ownership, as this is what I was offered by them. Also the other partner they will include will probably be in the 10-15% ownership as well. There is no investing of funds from anybody as well.

Pretty much to summarized it will probably look like this:

Partner A - 35%
Partner B - 35%
Partner C (me) - 15%
Partner D (another late joiner) - 15%

Is this a fair distribution for being a year late?

Edit: Wow didn't expect so much traction, thank u all for your answers. Im mostly asking this as it's the first for me. Anyways here are some additional information if you find helpful:

1) The equity will be vested in 4 years
2) There will be a below market rate salary as well that is nearly equal to all founders (minimum wage basically)
3) Their reason for wanting additional co-founders is to have people who truly care for the business and run it with them in the long term
4) The value I'll be bringing is handling their marketing sector which is key for their growth right now

 

[outlawstate]

@biblequest Why are they bringing on "cofounders" and not "standard" employees?

 

[thatoldsailboat]

@outlawstate Probably because they want someone to do founder work for zero pay and are willing to let go of some percentage ownership in exchange. This is not a deal I’d take but many do, it’s not particularly nefarious at face value.

 

[outlawstate]

@thatoldsailboat Agreed not necessarily nefarious, but if this is the case, calls into question how far along this "startup" actually is.

The more things look like what you're outlining, the more it suggests that there isn't a "there, there" (yet), and thus that a "fair" amount of equity is actually something even close to an even share.

30% (total) is a ton of equity...most startups that are going even semi-well are going to be better off giving most of that equity away to investors, for cash, and then hiring people.

If the current founders can't attract enough cash (or investors at all) to do so, that is a flag that this business is really pretty close to square 1. If they can't raise enough to hire some good people in exchange for 20-25% of the company...they probably haven't derisked much.

 

[williamt]

@thatoldsailboat This is a very fair deal. I think you forget that start ups aren't flushed cash to spend on talent. That's why a good percentage of equity is given.If you want a job then get a job, but expecting above 65k pay and percentage that goes above more than a couple of points seems wildly unreasonable.

Even when revenue does come in it makes business sense to re-invest it rather than distributing the profits.

 

[biblequest]

@outlawstate Good point i added some extra info in the edit section

 

[outlawstate]

@biblequest I am somewhat skeptical of what they are offering, see my other post.

 

[mystisch]

@biblequest Sounds fair at least in my books

 

[victory4us]

@biblequest They’ve achieved post-revenue, which is a big milestone. Next would be PMF, I assume. That’s another big hurdle ($1m ARR, same segment, same sale channels etc), by the groundwork is largely there.

Think of it like an investor: if you came in at day 0, you expect more of a share as you’re taking all the risk. Given they’ve achieved so much, it’s a smaller risk for you.

Depending on your value/skillset, 15% is what a generous investor would ask for at pre-seed for a large check (depending on country ~$250k -$1m) at a $2m+ valuation.

How have they valued their company now? Given they have revenue this is easy to do.

Perhaps work backwards from that to understand what 15% is, and model how that gets diluted along future investment rounds, if that’s their plan.

More than that, understand their plans / exit plans and the product, market and style of the founders to ensure it’s a good fit.

 

[biblequest]

@victory4us Thank you for explaining in detail, this will definitely help

 

[victory4us]

@biblequest You’re welcome! Good luck!

 

[gomper]

@biblequest This has red flags. You want to determine your compensation, but you describe everything everyone else has done. This context is important (it's like applying a reverse-haircut to founders due to derisking), but it's not the point.

What are YOU going to do to get paid, in a voluntary market exchange, where the value you provide is equal to or greater than the value you are paid? What do you even do? How could we possily evaluate your value if you don't even mention it? It's a red flag to see a potential founder say, "i'm going to walk in and how much do i deserve!?!?" Without even reviewing what their value-add might be.

Join as a cofounder and loaf around? 0%. Doing commoditized labor like chief of staff? Minimum wage converted to equity. Join as a cofounder and rebuild critical infra, drive a million sales and bottom line revenue? Meaningful

But this all feels like entitlement, or at least a terrible mental framework for teamwork. A potential founder who just expects equity for being a warm body is a skip

 

[biblequest]

@gomper Thanks for ur input ive added some extra info in the edit part. Unfortunately cant go too much into detail for confidential reasons

 

[wmsgil]

@biblequest 15% as a late joining non-technical founder is crazy high. Would expect more like 5-10% typically, dropping to 2-3% if a first hire / not named as a co founder.

 

[williamt]

@wmsgil I kind of agree, but it does seem fair if it's just equity without pay.

On post revenue here is how I see the pay structure by equity.

15% and zero pay until all founders start to collect salary.

5% and 35k salary, but no cofounder title

2-3% and about 55k salary, but no cofounder title.

The salary would only go up once cofounders start taking in salary.

 

[wmsgil]

@williamt Yeah that seems like a reasonable scaling based on early salaries.

 

[williamt]

@gomper Dude wtf are you talking about? Who's gonna give 15% equity on post revenue to dick around?

 

[ladygemini]

@biblequest Without reading the offer is imposible to tell how much your share is worth, 15% of almost nothing is almost nothing. Find (and pay) a lawyer that can help you read through the contract. The language can be very complex even for contract lawyers that don't have experience with startups. Google Skype Clawback and read the TechCrunch article.

 

[twelveplus_5]

@biblequest Hmmm... if you have to spend an equal amount of time (maybe long hours) and have marketable skills, knowledge and experience to parallel or bring them to another level (another level is preferred) than be careful.

The fact that you don't have to invest $ (at any point) is a plus. Time is our greatest asset ~ so.

Be careful. If you can afford to do this and you can see greater success than your own start-up or employment it may work for you. Best of luck. I am on your side!

 

[juda]

@biblequest Negotiate based on value you're bringing in.