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How much Equity for a Part Time Tech Cofounder ?

I have been working full time on an idea from over a year now. Concept, Market validation, Product design UI / UX, etc., are complete. I am all set to start Product Development. My core strengths and experience are in Sales, Marketing, Business Development. Though I can afford to outsource Ver 1.0 Product Development to an external Dev company, I feel that would just help me get into game, but not play for long and win.

I understand for my startup's success, a strong team is very essential. We are bound to go through Product iterations, Pivots to reach the sweetspot of Product - Market fit and further Traction. For this, without a kickass Tech Cofounder and a team, it would be difficult for us to succeed. I am very passionate about this venture and personally investing angel round money of $200K required.

I have been on the look out for a Full time Tech Cofounder. It has been a long search and haven't found the ideal one as yet. A friend of mine working in a large company recently expressed his interest to join me. He is a Tech Engineer with decade of experience and an impressive profile having worked with Yahoo, Microsoft, Amazon, etc., He is in a good position, earning handsome salary and does not wish to leave his job now. He remotely works for his company and need not have to attend office everyday.

He is interested in my idea and can work part time, initially around 4 hours per day at my office. He does not need salary now. Once we raise the first round of external funding or series A, he wants to leave his company and come on board full time. He would require salary at that time. Other team members like engineers, sales, etc., shall be paid market salaries from day one.

He wants to know how much equity I can offer him now = x% and later whenever he is able to come full time = y%. I have told him that both equity shall be over 4 year vesting with 1 year cliff. I am trying to come up with both x% and y%. I tried few models to arrive at these numbers, but they are varying widely.

Need your quantitative and qualitative inputs, support and advise. Appreciate your help and thanks in advance.

9 Replies

Peter Johnston
1
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Peter Johnston Advisor
Businesses are composed of pixels, bytes & atoms. All 3 change constantly. I make that change +ve.
You have just raised the bar beyond what any startup can handle.

These days major corporations change their entire business model every few years. Products have lives of 18 months or so, before the next generation model comes along.

In that environment, a year to go through validation is unacceptable. If you cost this at a normal salary for the person or people concerned it adds ?50-100k to the cost base the company has to recoup before it can be profitable.

Development should also be multi-threaded. The co-founder should have been core to the project from day 1, matching the market research with what was possible technically. Sequentially, the wrong questions will be asked and the product will be hampered by poor understanding of the possibilities.

You are now not looking for a co-founder - you believe you have done the market research etc. - but a technician to build what you have decided is the product - and presumably intend to control going forward. That is a very different role.

No self-respecting technical co-founder should touch this with a barge pole.
Nofyah Shem Tov
1
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Nofyah Shem Tov Entrepreneur
Founder BlogMyLunch
I just took on a Marketing cofounder, even though i myself am strong in Marketing, this person has more startup experience than I have, plus as the founder, I very much need to relieve my duties to a competent person so I can worry about other aspects of my business.

I was told to make sure I set the job description clearly and then award equity based on milestone completion. So, with a Tech partner, this would obviously be when they complete different levels of the project, etc,

I suggest you read up on lean startup theory.

I wish you the best of success in your venture!



Nofyah
James Wallman
1
0
James Wallman Advisor
Futurist at The Future Is Here
hi Vinayak, What a (great) question. I've been working on this recently. I haven't got as far as you, but found some sites that helped me - I especially like Buffer's guide as it takes into account the risk... & the fact that YOU have de-risked the business. See this page : (oh & this isn't any kind of sales pitch). I just need help from people on my journey & where I can also help... love to chip in! Best & good luck, James
Clive Butkow
1
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Clive Butkow Entrepreneur
Chief Executive Officer at Grotech Venture Capital Company
Vijayak as a VC and entrepreneur having done many of these days in the past. I believe your 4 year cliff vesting is spot on and pretty much industry standard. Personally I would not give over any equity until he comes on board full time as the risk you run, you hand over equity whilst he is still employed and then decides never to come across and you have given away equity without any future commitment.
Robert Tolmach
1
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Robert Tolmach Entrepreneur
Entrepreneur and Social Entrepreneur
Make sure that every scenario is fair to him. He should be compensated for his four hours a week of unpaid time, even if he does not join you full-time later, especially since you see it helping you get to the next level. You can do that by granting some smaller amount of equity for that effort (no cliff). Then grant more with normal cliff and vesting provisions if he joins you full time.
Abhinav Somani
1
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Abhinav Somani Entrepreneur
Working towards making sports and fitness activities flexible, accessible and affordable
Hi Vinayak, As many would have told by now, in totality it is quite a subjective call.. but the process you use to get there should have some objective elements. I was in the same boat 3-4 months back and tried various approaches. One suggestion from an entrepreneur clicked. The basic suggestion was to assume that both of you have an equal share and then start adding shares/%points to your name (because you were the one who did the groundwork) taking into account all the effort (and cash) that has been put in by you alone. About valuing the cash in terms of %.. we followed a thumb rule- the amount of money being put in/planned by me (at that point in time I was the one supposed to put in the starting cash) can be valued in % terms assuming that the first round of planned seed funding equals the valuation of the company.. I know there is no literature or examples to support the above method.. but the more time we spent on it.. from many angles.. it turned out to be a fair way of looking at things We need to keep this in mind: The cash we put in the initial stages will
Vinayak Rajanahally
0
0
Vinayak Rajanahally Entrepreneur
Founder & CEO at eventValue
Thanks Clive Butkow for reinforcing my point on 4 year vesting with 1 year cliff. But as Robert Tolmach says the person is spending time and helping me take startup to next level. Should I remove the cliff so that he is atleast compensated for his efforts if he chooses not to come on board full time later.
Clive Butkow
1
0
Clive Butkow Entrepreneur
Chief Executive Officer at Grotech Venture Capital Company
Vinayak one of your previous responses was correct thstvacsmall amount of equity could be earned whilst he is doing the work. What I would propose is to reward milestones achieved I.e. Results not activities, I.e. How much work has been done. Only give equity away when key milestones have been reached piece by piece
David Pariseau
1
0
David Pariseau Entrepreneur
CTO and CoFounder at Particles Plus

Vinayak, you should work out some "salary-type" compensation whether that is a stock grant (as Robert suggested) or deferred salary (to extend your runway), and then put in place pretty much what you proposed (4 year vesting w/ 1 year cliff). There's no real way to know what will happen in the relationship. If it's someone you know and respect then you're further ahead than many. What the vesting makes possible is trying this out to see how it works. If it doesn't work you can simply terminate the relationship and pay whatever deferred compensation has accrued at some point.

This structure allows both of you to "try this on for size" and see if it fits and it allows the co-founder to buy into the idea and make it his/hers (important for the co-founder), and to start adding value (important for you to see return).

As for the equity position, pick a number and discuss it with the co-founder. Everyone is different as to their desire for equity vs. salary, some want all equity and are willing to invest, while others are more biased to a salary with a smaller equity stake (the latter is a possible issue in ensuring there is proper motivation for success).

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