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Founder equity vs first employees

I started working on my startup product 5 months ago solo and just found a cofounder. We may bring on a programmer and also want to reward / incentivize our attorney who’s been helpful.

Ive done most of the work so far and had the idea/concept/research/design/MVP / sales leads.

How does this sound ?

– 45% me, CEO

– 35% tech cofounder

– 20% left for employee/advisor pool (maybe 1% attorney, 1-2% programmer if proven over trial, 0.5% advisor etc).

  • This is not a simple question and requires more details. Are you both working full time with no salary/salary? I think you need to consider the roles ppl are taking as they have a different value. See some of the equity calculators. Yes you’ll need to set aside some pool for early employees but I don’t think it needs to be 20%; 10% should suffice for this stage. If you’re paying your attorney they are owed nothing but the agreed upon rate, assuming it’s their full rate. As for a programmer 1-2% is too much if they’re getting a market rate salary, if they’re taking a cut then there is something to discuss. You need to speak to someone that you trust in the space, much more experienced than you and DO NOT PROMISE ANYTHING to anyone until you understand all the different types to compensation i.e. equity vs options etc. I’m serious, stop talking equity to anyone you have a lot more research to do. The roles of ppl in the company will change as will their motivation to work on it as such the equity conversation will be evolving over time and will change many times.

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  • There’s just no way to assign any reasonable valuation without getting way farther into the details than you are. So, with that in mind, sure, whatever. There will only be a problem when there’s a problem with either people losing interest because their equity isn’t worth much and they’re not getting any cash, or people are getting a free ride in terms of equity and they’re not producing. The first problem is solved with money or equity grants, and the second is solved through vesting shares over time and firing people who aren’t pulling their weight. No block grants. Put it in writing, but don’t just dish it out in a lump sum.

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    • Your biggest problem is balancing equity, which is probably not worth a lot, versus a technical co-founders time, which, unless they’re useless, kind of is. You’ll know this is a problem when your dev stops showing up to work for free.

      Reply

  • I would give first employees no equity whatsoever, unless they were a major hire like head of engineering. But, I would also pay them a fair salary, and benefits. I don’t think that people who don’t have any skin in the game should receive equity.

    An employee has the liberty to walk away at any moment and go work for another company; their livelihood isn’t on the line the same way that a founders is, since the founder is the one sacrificing everything to realize their dream.

    I understand giving equity to investors since without doing so you can’t get their money to help grow the business, but I don’t see the logic in giving valuable equity to people who are already receiving a salary and who have not been there from the beginning.

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    • > their livelihood isn’t on the line the same way that a founders is, since the founder is the one sacrificing everything to realize their dream.

      Easy on the founder porn. No one’s livelihood is on the line, we’re all living in an extremely privileged time, and especially for strong technical hires, consider yourself damn lucky to get them in the first place.

      Give equity to early employees who are there for the long-run and will end up being instrumental in the success of your company. That’s what the majority of the of equity pool is there for (later-stage employees receive materially less or no equity b/c the risk-factor is far less than early stage employees). Of course, be willing to give more equity to employees who are willing to take less equity.

      Reply

      • “Easy on the founder porn. No one’s livelihood is on the line, we’re all living in an extremely privileged time”

        Tell that to this guy:

        https://startupsanonymous.com/story/i-failed-again-and-again-what-the-heck-am-i-supposed-to-do-now/

        Would you disagree that he is sacrificing way more than any employee would be, if that employee was taking a salary. I don’t care if the employee is an early employee; if their compensation in terms of salary and benefits is around the market norm for the experience and skills, then they deserve no equity.

        After all, they were hired to do a job and get paid for it; they weren’t hired on as a co-founder. If they work hard, it’s because they should, since they’re receiving a salary, and not doing so would be disingenuous.

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  • That guy left a crappy back-office tech job at some anonymous bank, worked a couple of years in startups and got an education vastly more valuable than any master’s degree, and now he’s young and experienced and ready to do something else. Had he stayed in the bank he’d be living in a 100sf bedroom in Manhattan in an apartment with 4 roommates and experience as generic as it gets. I’m sure he’s fine.

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