What would you expect the equity breakdown to be?

[eucatastrophe]

Founder A:

• Came up with idea
• is fully financing the operations
• Has connections to fundraise (if needed)
• Is in charge of sales - landed first "contract" (no charge), but is a major player willing to use the software

Founder B

• Product / Design
• Involved in all pitch meetings, built PoC designs
• Will lead all product and design work
• Making 150K usd salary

Founder C

• Developer
• Will do all builds
• Will inevitable lead dev team if and when one is hired
• Making 150K usd salary

 

[asaithambi]

@eucatastrophe Sounds like there is one founder and 2 early hires.

Edit: Another generous view is you have 3 co-founders and co-founder A is also an investor.

So if he pays salary for the first two that’s ~400k initial investment maybe on $1M val. So

40% from just investment, and the remaining 60 split equally so

60/20/20

But I would only use this view if founders b/c are very good

 

[honestsisterinchrist]

@asaithambi I agree; it sounds like one founder and two early hires. If I were Founder A, I would treat it as such, allocate 10-15% for the employee option pool, and give Founder First Employees B&C a quarter to a third each of the option pool, 2.5-5%. I would make an exception if either of the two has a past startup of success or is leaving much higher salaried positions at successful companies or if their "names" on the pitch deck would be meaningful to any future investors.

 

[aforgivenman]

@asaithambi I generally agree but depending on location and experience the developer could be worth a percent or three since a 150k salary is low for a full stack

 

[brucee]

@aforgivenman OP did not provide any relevant experience information, if they are junior or senior should be part of the consideration.

 

[aforgivenman]

@brucee Which is why I said it depends on experience...

 

[asaithambi]

@aforgivenman 100%, all hires in the startup should be equity comped. 1-5% is super common for the first few hires.

 

[brucee]

@asaithambi Exactly what I factored before I even clicked the link. Yes. On the surface, yes.

The real variables are the value each side of the table puts on each other, which is the only thing you're negotiating.

 

[00michael]

@eucatastrophe The person who is taking the largest risk takes the largest equity percent. Sounds like founder A has literally ALL THE RISK because they are fully financing the operations and does not take a salary. B and C taking a salary is reducing their risk to almost zero. So IMO founder A should get 100% equity.

If B and C threw in some seed money then that would be different. But you didn't say that. So that situation sounds like 1 founder and his first 2 employees.

 

[fuzzie]

@00michael Agreed. Also depends on how unique the product design is. If person B and C left tomorrow and couldn't be replaced, I would consider 10% each to keep them sticky and give them skin in the game.

 

[deanie]

@00michael

So IMO founder A should get 100% equity.

Disagree slightly - early employees are taking some degree of risk, but with a salary approaching market, it's fairly minimal. So founder A should get almost all of it, but these two early employees should get very generous stock option packages. If they're fairly known quantities in the industry (exits, etc.), then I'd upgrade that to extremely generous.

Edit - just noticed what /@honestsisterinchrist said here and fully co-sign their comment.

 

[highhopes]

@deanie Agree in general, but having been Founder C before, it’s likely that that salary is nowhere near market, and probably just enough to cover their fixed costs. In my case the $150k would be about a third of market, but it would cover mortgage and childcare costs. I would take the deal for 5-10% equity if I had a great relationship with the other cofounders and really believed in the company.

 

[deanie]

@highhopes Yes I am in complete agreement.

 

[tennyson1]

@00michael I dont agree with that. as someone who invested in this way, you need to have a proper partnership and not just employees. I would give 15% to each, vested over certain period.

Founder A here is aware that he has the idea and needs someone with focus and dedication to help build. it is obviously something that is worth 300k of investment, he obviously has enough cash to invest. but because of the risk he is entitled to the largest share.

Employees come and go, if you are vested you are interested in staying if prospect is good. With further investment rounds their 15% will probably be diluted as well.

also from the salary I suspect location is somewhere in the US, and these are not exaggerated. I would say rather decent so they focus and do full time work on the product.

 

[00michael]

@tennyson1 That's far too generous IMO. That's basically charity. Here's how I see it. If the business fails, who will have a net loss of money? Founder A will have a large net loss. But B and C will have a net GAIN from their salaries. That's why they get 0 equity.

 

[brucee]

@00michael Then hire people, not founders. That is a key difference and provides significant value to the company, or you wouldn't have them as founders.

The only calculation that truly matters is how much (or not) the CEO values these individuals compared to how much they value themselves.

 

[asaithambi]

@00michael All startup employees, even the 100th employee, should get equity. It aligns incentives. Heck, big tech pays equity even to their 100k'th employee.

 

[tennyson1]

@00michael No. but they do not have rights to equal shares. Founder A is a person with money and connections, Founder B and C are persons with skills needed for things to start up.

If B and C are salaried only they are not founders, founders have equity, they are employees.

Employees have a different mentality, they come, work 9-5 and go home to play video games and drink beer. Founders work 16 hours/day, work weekends and they dont ask for extra money.

Money is here just to make sure they don't need to worry about getting food on the table, because if you need to do your job and then work on the side to do a startup - it is going to be much slower.

Founder A knows what he needs and wants them to focus. if B and C said we want equal equity "because we do all the heavy lifting" then A would say, sure but then no pay and we do equal investment.

EDIT: I read Founder A position from the description. He has good client who will be a referral, even investor, he knows he has initial entry and is trying to score the point that is why he is willing fund the B and C to focus.

 

[survivor1288]

@00michael

But B and C will have a net GAIN from their salaries. That's why they get 0 equity.

Why would anybody join then, even as employee? Senior level people will get better pay, better working conditions and less/no risk of losing their job because of the company went out of business.

 

[foxhound21136]

@eucatastrophe Sorry but it seems like there's only one founder. A is fronting all the risks and B & C are getting paid a salary. A would get the most equity and B & C can get an equal amount of equity.