Equity · Founders

co-founder after 3 years of running, equity and title question

Alison Lewis CEO/Creative Director

April 22nd, 2014

Other people have asked similar questions, but I didn't see something like this, so here goes. We've built product, we've made money and now we're pivoting back to the original plan. We have 4 founders. Another person has been working with us for about 1 year now; 11 months with part-time pay for their services. There was no equity exchanged. When we pivoted, we asked people to take a pay cut and go for it in an incubator. After the frowns I've seen the past few days, and discussions, it seems that person wants co-founder on their resume. 

This person is a hard worker, very resourceful, and gets along well with the team. But, I don't see them being an executive or taking on a big leadership role with the team when it's all funded. Founders don't have to be execs, in fact most are not. However, after suffering for years and building the company to this point, it's hard for me to just give that title away. My other co-founder thinks it's not a big deal as long as this person is happy and stays on. 

I feel things are getting tight and VERY tough and everyone is grabbing to secure their place so they feel validated. 

Thoughts? Anyone else been through this? We're not funded .... yet, but all the founders stock (common stock) was given out already. What is the downside of giving this title?
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Tim Kilroy Analytics - LTV - Boosting Profits - Digital Marketing

April 22nd, 2014

There is no downside to giving this title. It confers no special rights or privileges. It provides no guarantee that one will have any say in the running of the company. It is much more an emotional thing. If they are valuable to you, if they are worth keeping, if they are truly a founder of the company in its newest incarnation, then I say let them call themselves a founder. But Founder is not a title on a business card, and trust me, no future employer really wants someone with "Founder" on their resume, because the potential employer sees Founder as "Flight Risk".

Founder is something that you get to tell yourself in the mirror, not something that carries any weight anywhere but in the way that you do your job. 

Luis Avila Owner/Fullstack Architect at IdeaNerd LLC

April 22nd, 2014

Haven't gone through a situation like yours so I can't exactly relate.

With that said... In situations like these I ask myself...  would I rather be right or would I rather be happy?

I am thankful that I am somewhat wise enough to know that a title does not really matter and that giving other people what they want can also get me what I want. I'd rather be happy.

Vinit Modi Co-Founder Campusly | Mobile Web & User Research Consultant | Strategic Leadership

April 22nd, 2014

Another thing I have seen is "Founding Engineer" or "Founding Team Member" - an alternative if you don't want to name them co-founder. 

As others mentioned - the stake is what matters, not the title. 

Tim Kilroy Analytics - LTV - Boosting Profits - Digital Marketing

April 23rd, 2014

I think the salient issue here is that "Founder" isn't a title. It is a status and a mind set. You get no special privileges as a "founder". You can get fired by your boss, you can get demoted by the Board, you can have someone hired above you...let's not confuse the idea of "founder" with the potential equity of "founder".

If that person has been integral to the genesis of the company, regardless or not if they were there at the inception, and you want to consider them a "founder" then go ahead. It won't change their comp, or their equity stake, or their day to day - it may, however, change their level of commitment.

Patrick Ford Software Development Manager at McKesson / RelayHealth

April 22nd, 2014

Titles are free. So long as you don't feel that it would hurt the reputation of the company and your equity deal is signed and sealed I see no reason to hold back the co-founder title. That's assuming you value the person and want to keep them on. Sent from my iPhone

Will Glasson Assistant County Attorney, Multnomah County

April 22nd, 2014

Agree that there's not much downside to giving the title if s/he's a great contributor and a valuable part of the team (now and going forward). That said, I think stock should go with the title. "Founder" conveys that a person has more skin in the game than the average employee, which generally translates into investment and stock. If you're out of founders shares, you would need to recapitalize. That can be an expensive proposition, have tax consequences if done improperly, and stir up challenging issues + debate. 

Manu Chatterjee CEO at Moodwire

April 22nd, 2014

I agree with many responses above.  If the person is valuable, and especially if financial stability is poor, and they are looking for recognition then giving this 'title' can be worth it.  Ownership should be decided by your existing equity plans so that should not be an issue.  

Assuming they are valuable to the team, then imagine them, explaining to themselves why they are still in it (or their friends) if they are "just" an employee.  The term founder can bring an emotional buy-in even for non-execs.   However I'm curious about their stock situation given the company is not funded and you mentioned 'all the founders shares have been given out' - they should have some equity based tie in to the success of the venture.

Good luck!

David Albrecht -

April 23rd, 2014

I have to disagree with a lot of people on this thread: the title may not matter now, but it absolutely will matter later on. When it's a five-person company, everybody does everything and people can directly measure each other's contribution. Totally different story when the company is 50+ people, opinions of others' contributions are based on secondhand accounts and recognition, etc.

Titles set expectations about a person's level of contribution, input, and ultimately, control over the organization. You have to be very careful about this.

My advice is to optimize for the success of the organization. If giving someone a founder title is what it takes to keep them on, and they're a vital part of the team, then give them the title, but only if it doesn't set a bad precedent, and other team members who don't get the title/recognition won't be (overly) demoralized.

For the engineers out there: this "organizational debt" stuff is like tech debt; sometimes you make short-term decisions because they're the right thing, and you have to do it, but eventually, undoing them will require a lot of hard conversations, corrections, and people might ultimately leave or worse, speak negatively to the press or other outsiders about it.

David Albrecht -

April 23rd, 2014

Another thing: Vinit, it's not just about the stake. If you give someone a founder title, and they work like a founder, you're setting up for a really bad situation a year or two later when everyone has the same "status" but some have a much bigger financial outcome than others. This kind of stuff can destroy personal relationships. 

So again, if it's what it takes, do it just like you'd take on tech debt, raise at a crappy valuation, etc. But be mindful of the team dynamics, especially for what it says about you as a negotiator, and whether you're just postponing the inevitable.

Onikepe Adegbola, MD PhD

April 23rd, 2014

I agree with most of the comments above. If someone has been with you in the trenches, through good times and bad, is integral to the success of your business, and needs that title to continue been emotionally vested and committed- by all means, give it to them. It's not going to cost you much, and you may motivate an important team member to continue to contribute at the highest level.