Wow, you are all really making me feel like participating in a start up is a terrible decision. Some very disheartening responses indeed!
I was was reading this string because I am a brand spanking new founder and I was looking for insight on how to find critical team members/co-founders. No doubt, I am naive but by reading most of these answers it seems start ups will go nowhere, founders have unrealistic expectations, and you will suffer through the development of the company and product. Not to mention that it is almost never worth becoming a cofounder...
Should I even pursue my idea? Well, the good news is that I will start my search for our third cofounder soon. But we are nowhere near getting funding yet. We need our Tech Cofounder first. For me it seems like a catch 22 - you can't get funding til you have the right people in place to bring the plan to life but... You can't get the good people til you can pay top dollar.
Here is how I am going to approach it:
- Mindset that the Tech Cofounder is key to the success and has valuable insight, expertise to make it a great success
- It is a mission driven idea and all have to believe in the mission and have a mindset that for profit does not have to be destructive profit
- We will all collaborate to map out each phase of the project and when we will be able to reach out to get funding
- We will determine our roles and responsibilities for each Founder and how much time it will take to get each task done
- We will determine if/when we need to be full-time on the project. Maybe one founder has to devote full time during one stage v the others... How can we compensate in those scenarios?
- Using the above to determine equity stakes
- We will all determine how far we can get without outside funding - so as to keep control over the company
- We will work through scenarios if one founder needs pay and how it impacts equity...
- Keep the conversation going and anticipate changes/new scenarios
If if after that plan does not work... Then onto plan B but my belief is getting the right cofounder up front is critical. Get the business of the ground with the right people in place.
But I would never ask anyone to forego salary for 2 years... That seems crazy to me.
Founder is exactly this. Everybody will love the possibility to be a founder and receive a salary from the beginning. You are luck you don't have to invest your money as well. Normally, founders spend their time and their money. I see your situation as: You have the possibility to start a business with some investor backing you up. That's great. Welcome to the founders club! That's why you should only get in if you believe so much, in such a way you are happy to put your soul in that initiative.
This is an old question (May 2016), but I'm going to chime in because someone mentioned the Slicing Pie model (thanks Chicke!) and I want to elaborate.
First, to answer your question. You survive by draining your savings, reducing your living expenses by living on your friend's couch and eating Ramen Noodles, and taking on freelance work. Many people (including me) have lived this way on the path to success and it sucks, but it gives you a good origin story and a little grit. If you believe in the company go for it.
Now, to elaborate on your situation. You need to make sure you are getting your fair share of the equity in exchange for your commitment. There is only one way to do this and it's called "Slicing Pie." It's a formula for determining a perfectly fair equity split and it is the only formula on the planet that exists (if there was another formula it would have to yield the same result because there is only one right answer).
The founders are making a classic start-up mistake--trying to predict the future. No salary and benefits for two years? Says who? If you raise money tomorrow will you get salary? What if it takes three years? Nobody has any idea what's going to happen in two years--not even an entrepreneur! Because the future is unknowable, any possible equity split decisions the team makes at this point will always be wrong.
This happens all the time, but it's always wrong. Always.
Think about it this way: when someone contributes to a startup and is not paid they are, in effect, "betting" on the future profits or sale of the company. The value of the bet is equal to the fair market value of their contribution.
People contribute all sorts of things including time, money, ideas, relationships, supplies, equipment and facilities. Everything has a fair market value.
What's clear is that you are going to forgo salary for some, unknown period of time. You may even incur some business expenses for which you will not be reimbursed. This is your bet.
Betting continues until breakeven or series A. In other words, you will only know the amount of your total bet when you no longer have to bet because you are getting compensated.
Your % share of the equity should be based on your % share of the bets.
The same goes for anyone else who made bets, including the founders.
This is the essence of the Slicing Pie model.
If you use this model you will get what you deserve to get no matter how long you go without salary.
If they don't use Slicing Pie, do not join this company. They will take advantage of you!