One year ago, I started a side project (evenings and weekends) with a friend.After 9 months of hard working, we managed to release our MVP.Until now, we invested around £10.000, and we have about 2000 users just in London. So we think we are ready for the seed round, but we have no experience with fundraising.My co-founder is a marketing specialist, and I am a software engineer.
A few weeks ago, a business development and strategy type of person approached us with the proposal of joining the founding team.We think that he will bring lots of value, experience and network into the project and help us to push the project to the next level.
My question is, should we accept the proposal? How much equity should we give away?
I urge you to consider startup equity differently.
A startup offers responsibility to create success, in the form of shared ownership.
This partnership aligns the values and goals of two or more, otherwise very different cofounders in order to collaborate with the understanding that they share responsibility. This shared responsibility is an essential part of any successful startup's core team structure and it is not easy to create.
This is not bestowing upon another, some alternate form of compensation —by definition, a startup's private equities are only valuable if these core founders each do their job, not before.
This is about sharing the correct amount of responsibility with the right person to be responsible for doing the perfect job.
I suggest you turn your question around and ask yourself how much responsibility and what part of success does this person bring to the core team? There's no right answer. You may vest into equity over time, you may be a cofounder and part-owner.
Your answer is likely more simple and clear to you, once you see this negotiation as shared responsibility and not reward or compensation.
"Give away"?? Not to argue semantics but you don't give anything away. You need to reshape your view. Unless you are a socialist which unfortunately there are plenty of, "giving away" in terms of business makes no economic sense. (Makes no sense as a socialist either...hence why socialism destroys entrepreneurship) Consider the value of the exchange for which your company's equity will be EARNED.
Jesse and David are both right. Equity is earned not given. There are a ton of threads on this platform discussing methods by which sharing equity can be done. Read them. But the foundational principle to equity is that it is an exchange of value.