Is my tech cofounder asking for too much?

Hi, I have recently started an e-commerce business, and whilst initially it was me and one other founder, I decided that it was not working out, because he had a lack of funds, lack of time and we had similar skill sets.

Sometime later it became apparent that I would need a technical co-founder who is also competent at digital marketing and product mockups. I decided to take a friend on board, and everything has been going great. We decided I would give him 10% equity as well as pay him a small weekly wage for the work he put in.

The problem is that he underestimated how much work needs to be done, and is now asking for a 25% stake along with the small weekly salary. However, he has not provided any capital, nor any of the preliminary planning that was needed to bring my idea to fruition.

I am willing to compromise, but it seems that what he is asking is too much. I am keen to hear other’s thoughts on this.

Thanks for taking the time to read this!

Considering you’re pre-funding and pre-revenue, the friend you brought on board is a co-founder and not an employee. Depending on how much work he’s doing 25% may be completely reasonable, or even on the low side.

If it’s just you and him (the other guy being out of the picture) why the heck should you get 9 times the equity?

If you’re both working for the startup full time as partners you bring in the idea and some money a 60/40 split would be fair, 90/10 would be absurd. If you’re making 80 hour weeks and he’s putting in an hour or two in the evening, then obviously the equity stakes should reflect that.

Don’t take advantage of your friends. Focus on building a great business, that way everybody gets to be rich.

You don’t mention what all this “preliminary planning” actually is. Do you have customers lined up? That’s worth something. The rest is pretty much worthless though (spreadsheets, business models, wireframes, etc)

You should be giving him 30-49% unless you have any traction. All your planning will probably go out the window without a technical resource.

You mention paying him a wage. Well it all comes down to contribution/wage. Large contribution/no wage = big %. Low contribution/high wage = low %. You can also throw in money invested into the mix as well.

At the end of the day what is your BATNA. Best alternative to a negotiated agreement. Can you simply hire a contractor to build it and pay 100% out of pocket? If you can then of course you can let him know that he’s not that important. If he’s super important and you’re not willing/able to go the contracting route, then 25% is small.

Either way its difficult to tell from a few paragraphs, but 25% doesn’t seem outrageous.

Anonymous says:

January 17, 2016 at 1:49 am

Same commenter as above. You mention ecommerce. Actually if his job is just to build the store and that’s it you may want to work out a deferred payment instead of equity.

Usually the tech cofounder is given a high equity because tech is central to a business. Can’t you get a consultant or use an off the shelf solution like shoplift?

Reply
- Anonymous says:
  
  January 17, 2016 at 1:49 am
  
  Shopify. Damn autocorrect.
  
  Reply

I’ve read through all the responses above. However, I’m of the opinion that if your tech co-founder (not really a founder because he/she did not come up with the idea and did not provide anything but time), should be happy with the 10% and his weekly compensation.

If he underestimated the amount of work involved then that says something about his competence. If I shake on a deal, I don’t go back and try to get more because of a mistake I made. If he’s now asking for more, that’s kind of slimly. What’s going to happen when the money rolls in?

Nevertheless, if you really need this person, then he or she has more leverage. The work you mentioned that this individual performs does not seem that technical, BTW. Anyone can do digital marketing. Providing a product mock-up is taking an idea that exists and putting it onto a tangible medium. Not that technical.