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How much percent of the company do I give?

I am starting a technology startup. I have a friend who I’ve known for quite a long time and has a very good network of potential investors. He has agreed to take the responsibility to bring investors to the company. He has also promised that if he fails to get investors, he shall invest his own money to kickstart this startup.

We also agreed that in the long run I will be the CEO of the company and he will be a chairman.

Now, my question is what’s the reasonable percentage of the company that I give him?

We have not yet discussed our percentages yet but before we do I want to know what would be reasonable.

  • Try this equity calculator : http://foundrs.com/ . i found it to be very realistic and useful.

    Can you tell us more abt the idea and the product. You say its a tech startup but believe me there is a huge difference between a core tech product (eg. dropbox) and a tech driven solution (eg. Uber).. I dont consider Uber to be a tech company as per my definition.

    Of course i dont value them any less because of it. But its very important to know the distinction. The reason im asking this is because its also a very important factor in splitting equity.

    Reply

    • Thanks for your reply,

      It would be a core tech solution and business will be created around that solution.

      I just used that tool and it gave me 63% – 37% ratio.

      Is 37% reasonable to give out to someone for getting in the investors ?

      What if he is unsuccessful on getting investors and decides to puts his own cash?

      Reply

      • Forget those investors for a minute.. you dont need to approach them for 6 months atleast i think regardless of what ure doing. Ask the guy to put enough cash in the company for 6 months on day 1. If he does that, its automatically in his interest to get investors and work hard.

        If you are unsuccessful in getting investors, its more likely that the product sucks, not the co-founder.

        About the equity:

        Lets say hypothetically he leaves you 1 month after you guys started..You can manage your living expenses but no money for marketing / promotion etc. You probably have to turtle up and cut almost every expense.

        Will you be able to launch a beta and do sales yourself in such a position ?

        If yes, then you probably dont need him that much. But if he is the only one doing sales then you need him a lot.

        I would also suggest that if possible ask a common friend to answer those equity split questionnaires for you. Often we will give ourselves more credit than we deserve. You got 67% that tells me you probably ticked a lot of boxes relating to sales.

        If you redo that survey and attribute all sales effort to the other guy, the answer will come out that he should be CEO.. and trust me , often that’s the truth.. The guy doing the Sales ought to be CEO.

        So answer this.. who does the sales.. and can that person continue doing it if the other guy leaves him ?

        Reply

        • Hi, Thanks again for the reply.

          All your points are valid. I forgot to add few things though.

          I will be putting 100% of my time. Where as my partner has many other things going on and he has no plan on giving his full time on this therefore CEO role can’t be taken by him. However if I run out of money, I will go to him to bring more money in the company.

          Answer 1.

          To be honest if he leaves 1 month after we have started (before we are funded), I can still get the beta out and pitch to the investors. Therefore I’m not 100% dependent on him. The only thing is that things will go easier if I have him and also we’re friends for such long time.

          Answer 2.

          I will be doing the most of the sales about 90% the time as my partner wont be investing 100% of his time.

          I’m sorry if my post is such confusing, as this would be my very first startup and I’m myself not clear how this will go.

          Reply

          • I don’t really think a network is worth anything… You are basically giving up 37% of your company (in theory) for some introductions to people who may or may not invest in your company. He needs to put in money on day 1 for such a large equity position, and divest himself if he wants to de-risk through his network.

            If you are desperate for cash and can’t self-finance through credit card debt, friends-family, etc… that’s the only reason you should go through a person like that.

            “We’re friends for such long time”. That’s not a recipe for success. If anything it will eventually add to the strain of maintaining a business relationship.

            Reply

            • Im the guy who wrote the previous 2 answers.. I havent written the above answer but i would have given the exact same advice..

              If the other guy isnt full time and you can do most of the sales, then you absolutely don’t need him. If he wants equity tell him you only intend to give equity if he joins full time.. Ask him to work part time with you and then switch to full time later.. This will be a true test for him. If he insists on equity then better to leave him out.

              Hard as it might seem.. ‘been friends for a long time’ has absolutely no merit in such situations.. believe me ive learned it the hard way.

              Reply

          • I tried that equity tool and filled it using what ive learned abt you.. It suggests 10-12% equity for the other guy..

            That’s probably fair.. Would advise you not to go above 12%

            Reply

  • Another great tool for taking the emotion out of a very emotional situation is http://slicingpie.com/. Let’s face it, building and nurturing a startup is stressful and hard, even worse when you are dealing with friends because expectations aren’t reasonable or well communicated before problems arise.

    Good luck!

    Reply

  • If his only role is to bringing investors, that’s not a co-founder role. But if it involves other things and he helps out with operation/business/development strategy, then consider these as well

    You can try give him a finder’s fee for investors (5% of the money he raise) in either cash or equity (I imagine he’ll probably want equity).

    And if he is investing his own money, then he becomes an angel investor and give him the percentage based on the money he invest.

    Reply

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