I am starting a SaaS business and my mentors are telling me that I should hang onto as much equity as I can. Thats gold. However, I am looking at bringing on a co-founder partner and a developer. I have no funding to pay them right now, however I am open to giving sweat equity. The question is, how much? What would you recommend is a decent amount of equity to offer to get some solid years out of the developer? Also, what is fair for a co-founder that will do a lot of work, but isn't expected to bring in funding.
If you really want a cofounder to stick through the ups and downs with you, their equity should be fairly high and close to yours...especially if all you have is an idea/concept at this point.
I'd rather have someone work alongside me with almost equal ownership who is truly committed. You don't won't them to feel slighted down the road when they realize they've put just as much work into the company, yet only own a fraction of what you do.
I am in a similar situation as I need to find a tech co-founder and have done a lot of reading how to make it happen.
Here is how I am going to approach it:
- the new co-founder has a significant role in the success. Without the right person in this role, I will not have a a great product so my attitude is be fair... not greedy
- so far, there will be 3 cofounders. The cofounders will walk through everything that needs to be done to launch and assign roles and resp.
- from there, we will assess the importance of each task, sweat equity contributions etc to assign fair equity.
- we will all determine when we need to go out and get invested and thus dilute our equity.
- we will set aside some equity for early employees.
- we will all collaborate on the roadmap to launch
- we will establish time lines and milestones that we have to meet
- if it makes sense, we will have a vesting
I am going in with an open mind as I believe a successful company, established with the right cofounders, will garner success for all of us. Collaboration will determine the right equity split.
This is rather a tricky question. You have to ask yourself. How much have I de-risked the company so far? That right there is worth your share. Are you brining on a Cofounder after you found product market fit? or developed an MVP? Or you could just play the "I'm not greedy" card and give equal split. Both have advantages and pitfalls. I'd suggest that you always keep a bigger part of the pie.
If there is no money yet, this solution is only an idea without hard proof that this will work.
Even if you follow specific proven strategy, this is a risk that everyone involved are taking, as you cannot claim you've been to Everest, before you've been there.
Looking at your own comment below... As a developer I'd work full time for 2% of equity if:
1. If others put in time equal to mine, but did not received salary of more than 2% of their market value and people doing that have proof of previous success in their field, re insuring me that when I will deliver my solution you will deliver yours, plus have insurances for key people in place.
2. Presumably there is only 2 people with full time involvement, you and me - 2% is OK, If you pay me 48% of my market value as a salary. If there's 3 people involved then 31.3333% as a salary etc...
You can give 40% with vesting
Can recommend Patrick McGinnis' book 10% Entrepreneur, which I believe he did mention in a chapter what sort of equity share you could give to different parties.
Though I would assume that the developer is pretty crucial since is a SaaS business (tech?). What about, instead of taking risks by giving away equity too early to someone who you don't know if will work out well in the team, why don't you keep him as an adviser with a promise for future equity share, and pay a third party developer to build your initial MVP? This way you have some time to work with this developer for a while to discover his working style and personality, which you can use to judge the value he can bring to the company in the future.
Here is what I think.
It depends on what you are contributing vs what he is contributing.
What about for a developer? If I pay a developer a smaller salary than market value, and in turn, provide them a vested equity, would 2% be too low?
About the size, I wouldn't mind giving 50 away if the contribution is truly equal.
I wouldn't mind taking 50 and working for free AS LONG AS it was for a limited time during which you'd need to prove that the idea has some traction.