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How much equity for VP Co-founder with no skin (cash) in the game?

I’ve bootstrapped my startup for almost a year and taken-on every expense as well as responsibility (market plan, advertising, development, market research, funding plan, etc.).

I have a group of experienced execs willing to join me on my quest in various roles, marketing, financials, ops, etc. They all have time and experience to lend, but not a cash infusion.

My research tells me that I should give them between 1%-2% equity in exchange for their efforts. No one is collecting a paycheck, we’re pre-rev. I negotiated 0.5% equity for an adviser which I believe is fair, just not sure about the other members of the team.

  • 1-2% for a co-founder is crap. Say you raise 2-3 rounds over the life of the company, and dilute 20% each time (which is a conservative estimate). After round A, they have 1.6%. Round B, they have 1.28%. Round C, they have 1%. That’s super lame. I wouldn’t touch it.

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      • Are they just glorified advisors or are they putting in real work? If they’re putting in real work then they deserve at least 5% depending on their contribution. At the end of the day you’ll have to justify it with THEM.

        Even if you can pull wool over their heads with a 1-2% equity, sooner or later they’ll realize they’ve been had and things will turn ugly.

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        • They’re putting in real work. I’m starting to think at least 10% is fair given there’s no paycheck, but there’s also no cash investment, just sweat equity and not much of that yet.

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          • Tech startups seldom put much value in the founders cash investment unless it’s substantial. I would split it based on division of responsibility going forward with a 10-50% multiplier for yourself for your initial work.

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            • I think that’s fair. I’m also reserving 15% for an employee stock pool. We’re east coast so the expectation from new hires is a bit lower and we need less of them.

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  • Don’t be a cheap bastard.

    If you believe they’re only adding 1% or 2% of value to your startup, why bother with them in the first place?

    If you think your chance of success doubles by having them join you, then you can also afford give them a SUBSTANTIAL slice.

    Reply

    • What is substantial? 10%? 20%? There are four total founders, three of which haven’t done any heavy lifting yet, and one who has done practically everything.

      Reply

      • Founders offer all manner of value add – only some of which is product development. I’d suggest doing some private calculations with Frank Demmler’s founder equity calculator to get ballpark numbers – actual numbers of course will depend on the individuals involved – including you:

        http://www.andrew.cmu.edu/user/fd0n/35%20Founders%27%20Pie%20Calculator.htm

        If you don’t have experience with equity dilution – I’d also look at equity dilution calculators so that you can get an idea of what a minority equity founder sees:

        http://ownyourventure.com/equitySim.html

        This is important because if you’re expecting to need funding – especially multiple rounds – the dilution plus option pool effects are very large. While a 70% equity holder diluted down to 40% is still substantial, an 8% holder diluted down to 4.5% is not.

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      • I’d also echo what others have said: if the contributions are future – there is no issue whatsoever with putting a time and/or performance metric attached to the equity grant.

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  • earned equity maybe the way to go.

    Setup an earned equity program and say if you put in full time hours it will be the equivalent of X% a year. That way if they don’t put much time in they don’t get much equity out.

    And I would agree that 1-2% is not worth anyone of substances time because of the dilution factor mentioned above. Something on the order of 5-10% a year is a much more attractive range…

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