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Founding Ownership

Was hoping to get some advice on a popular subject: founders and ownership

Another guy and me starting discussing an idea in Feb and put together an initial business plan. In Mar, we pitched it to a developer who's keen to help and is working with an outsourced firm to build the POC (the outsourced firm is getting no equity). A few days ago, we pulled in another developer who's got strong relevant tech experience (specifically mobile) which is critical for our app.

It's worth noting that everyone has day jobs and this new idea is being pursued on the side. For the 2 developers though, they haven't fully committed to the idea, they want to see how things play out.

Initially when my buddy and me talked, we agreed 50/50. When this first developer came on board, we discussed 1/3 each. And now with this second developer, he's asking for equal ownership, so 1/4 each. I'm all about a fraction of something is worth 100% of nothing, but I want to frame this in a way where everything is fair and motivating.

So I was thinking we can go with 1/4 each with with a typical 4 year vest, 1 year cliff, but make the 1st year based on key milestones, such as:
1. MVP Built
2. First Customer
3. Seed Funding
4. Product Launch

I would make each of the milestones worth 25%, so in order to get your 1st year vesting, you need to be involved and contribute to the 4 year items above.

Does that make sense? Ideally we all quit our jobs and focus on this 100%, but since that's not happening, I'm trying to figure out how to make this work.

Thanks,
Sati

8 Replies

Jonathan Barronville
2
0
Jonathan Barronville Entrepreneur
Software Engineer at npm, Inc.
Please check out Mike Moyer's Slicing Pie on creating a "Grunt Fund" :) .
Daniel Eberhard
0
0
Daniel Eberhard Entrepreneur • Advisor
CEO, Koho
Grunt fund.
Sati Hillyer
0
0
Sati Hillyer Entrepreneur • Advisor
Looking to Hire a Ruby Engineer to join OneMob - 2015 Gartner Cool Vendor for CRM Sales
Thanks Jonathan. I've read it and like the approach. Also looking for other ideas and comments on the what I'm thinking.
Mike Moyer
0
0
Mike Moyer Entrepreneur • Advisor
Managing Director at Lake Shark Ventures, LLC
This is a job for a Grunt Fund. It will allow you to calculate a perfectly fair equity split for all participants. The model is dynamic so it self-adjusts to keep it fair no matter what changes. It is the perfect solution for the problem exactly as you described. I wrote a step by step guide to implementing called Slicing Pie. Send me an email to [removed to protect privacy] and I'll send you a copy. Mike
Simon Bain
0
0
Simon Bain Entrepreneur
CEO SearchYourCloud Inc.
For what it is worth. I do not believe that there is a hard and fixed rule for equity positions. It does seem to me though that developer number 2 should get less than the 2 founders. They should really get slighter more than the 1st developer, however that bird has flown. The idea is the value. (By the way I am developer before I get flamed). Yes it needs to be created, but the idea itself is where the IP lies and where the future value will hopefully arise from. So with that thought I would say that Developer 1 has got lucky. BUT he/she has also now laid the ground work so would have earned position. Developer 2's job is easier again. They come in to a project which has an idea and has the foundations coded. Surely a less onerous task going forward? Simon
Sati Hillyer
0
0
Sati Hillyer Entrepreneur • Advisor
Looking to Hire a Ruby Engineer to join OneMob - 2015 Gartner Cool Vendor for CRM Sales
Thanks Simon. The second developer brought up some valid tech points that we didn't consider and as a result, we are going to re-architect/code the MVP, so he'll definitely have his work cut out.

What equity would you have suggested for the dev 1 and 2? I think the 2 of us felt that we can argue over the percentage and possibly lose the developer and lose velocity.
Simon Bain
0
0
Simon Bain Entrepreneur
CEO SearchYourCloud Inc.
Hi, Percentages sorry I could not say. But I believe that the original IP is worth more than the coding. Yes a good developer is worth their weight in gold (Yep I am one). But If the idea is not provided and they are given a spec, then that is just a job. So as with all jobs yes equity but at a lesser extent than that of the idea creator/s. then
Mark Cline
0
0
Mark Cline Entrepreneur
Developer at PitchPoint Solutions
Full Disclosure: I'm also a developer. :-)

You all have 25% currently. Even if the percentages are off, and you could change them I'm guessing you would be talking 5% +/- across the board. Any projects I've worked on line this we've done the same thing. Even split. The people coming in later are people that are needed to execute and we were basically in the same boat (a few weeks ahead of the new recruits).

I think you've done a fair split and I'd continue to follow the same approach for new projects. Look forward, focus on the execution, and hope it turns out that 5% makes a massive difference. Will make that 25% look even sweeter! :-)

Best of luck Xati!
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