Bootstrapping · Cofounder

Is it unrealistic to expect another founder to work on your team for sweat equity only (no salary)?

Ben Gottlieb .

Last updated on September 17th, 2018

ACCOUNTKILLER.

Scheibler Steffen Managing Director at Vacancysoft LLP

Last updated on August 22nd, 2018

It is not unrealistic to want this and it is possible to have such an arrangement. However despite most founders and partners being depicted as people of wealth, a lot of the time the wealth isn't so great or its wealth on paper with not a lot of liquidity, so many people are actually just not able to work without a salary, even as equity holders.


Overall, I would always be prepared to salary positions, especially key positions, in a start-up as soon as possible. Where not possible, it needs to be made a priority to be able to do so, as financial pressures on an equity-holder can force the business to fail (e.g. a founder gets divorced or becomes seriously ill).


EDIT: What is definitely common is for equity holders to take a significant hit on salaries based on market rates for their role in their location. Typically a 25% hit (lower market rates), scaling up to a 50% hit (for higher market rates, higher equity ratio) is usually a workable goal for many. The important thing is that people working and partnering up this way have a realistic horizon for turning their equity into cash. But: This is all meaningless if the business will remain un-sellable for years and years as it means equity holders are essentially low-cost workers. This happens a lot.

Dennis Hester CTO Cofounder seeks same for part time 10 year project to change world

September 2nd, 2018

Yes, it is unrealistic to expect people to work for free unless they are related to you or are your best friend. Things that are free are not valued/treated with respect. 9/10 companies fail, of the remaining 10%, 90% fail to achieve IPO which means stock is worthless. I have friends that have worked with BillGates/Zuckerberg/AndyGrove after they were successful and my friends demanded cash salary plus stock. So your request of only stock is ridiculous.

P.S. Dont tell people you have had 2x failed startups, that truth casts you in a bad light. Talk about successes, everyone loves a winner.

Safwan Khan Founder of Startupily | App & Website Dev | Write for Influencive ,Besomebody, Thrive Global

August 22nd, 2018

its not unrealistic at all. there maybe someone who would work on 100% equity if the business idea is brilliant and they believe in your vision. What skill set are you looking for in your cofounder? If you cant find anyone then the best solution is to learn that skillset yourself and implement it to develop your business and then once it picks up then im sure someone would be interested in joining you.

Mark James Experienced start-up CTO and advisor

September 4th, 2018

It depends on what you are looking for. Are you looking for someone to start a business with, to share strategic decisions, have autonomy? Or are you looking for an employee that you want to pay below the line, and reward later if it flies?

If you are reaching out for a technically minded business partner, they will probably expect a large chunk of equity, and will need other income streams or wealth to live off.

If you want a good, hard-working developer to employ, while retaining all the control, they may be more interested in the technical challenge itself, what tech stack they can employ, what they can learn, working environment/work from home policy... but they will almost certainly still expect a salary of some kind.

Richard Beck Founder-SoftwareOutsourcingSolution.com

Last updated on September 13th, 2018

It depends....


If you're looking for a high quality Software Engineer... and not a "Programmer," you can expect to pay "Market Rate" plus a piece of the company.... This is very reasonable...


Here's why....


As a Contract Software Engineer, he can earn $80 per hour on a W2... Working "only" 160 hours per month, he can make $12,800 a month with no risk...


Now, if you offer him a salary of $12,800 and want him to work 280 hours per month... He is now earning $45.71 per hour.... This is a massive pay cut of $34.29 per hour... This is why I believe you must offer a salary plus a piece of the company... for a high quality Software Engineer.


This is an awesome "litmus test." The high quality Software Engineers are smart enough to realize the true value of their time and expertise.... The low quality "hobbyists" who will waste your time and money won't.


In the end, the piece of the company is to compensate him for the thousands of hours extra he'll be working late nights, weekends and "on call" 24/7 for production support.... while most of the other Founders are enjoying "time off."


In my personal experience with six startups..... No matter how much the other Founders "work," I've never ever seen a startup where the non-Technical Founders are at the office hustling as many hours as the Technical Founders. If they did put in the 70+ hours per week, like the Technical Founders, we'd see a lot more successful startups... :-)



Anonymous

September 4th, 2018

If you have a good idea and want to create a MVP, why can't you find some investors to invest in a solid programmer? This also helps you test the other question: do i have a good idea? A smart way to develop nowadays, is with a dedicated (team of) developers in a different country with lower costs. We work with www.World-coders.com from Lisbon, Portugal. Real code-fanatics at much lower costs and with little hassle. And the costs are about 4-6k per month...



Chowdari Babu Founder @ ismac.io

September 3rd, 2018

you can travel to global location where costs are lower and startup from that location , our ecosystem has some of them , who have taken tax benefits of hiring foreign workers and training them

David M

September 5th, 2018

Rich you really need to stop commenting in these forums posturing what you have seen as if it is the only "way it is." When you do you mislead inexperienced entrepreneurs and destroy the validity of your other thoughts which in fact at times do show some experience. You state you have "never ever" seen a non technical cofounder put in as much time as the technical co-founders. You have no idea what you are talking about or you have very limited experience in which this is what you have seen. Either way your comment is backed by absolutely no compiled data to make such a bold assertion, and would be highly disregarded as utter nonsense by all the non technical co-founders out there who in fact "hustle" plenty. I have worked with several startups where the technical co-founders went home every day at 5 with a self righteous attitude, while the non technical cofounders stayed until 9, 10, 11 o'clock working on the strategy and operations to lay out a path for the application of the technical. I have seen non technical co-founders forgo their salary because the technical cofounders acted like prima donnas who were above sweat equity. I have seen technical co-founders completely run startups into the ground because they thought since they could write code that was the same thing as building a business. But I am not going to state technical founders "never ever" put in the same amount of hours as the non technical, or that all technical co-founders are pompous, or that there are not great technical CEO's of startups because unlike you I have the extensive experience and diverse experience to state there are rarely the kind of absolutes in entrepreneurship you suggest. If you are a tech guy who has not been taken serious in the past, blasting non technical founders is not a good way to break that habit. Furthermore, there are ways to influence the time and output of the founders such a vesting terms and even hour to output monitoring. As a tech founder perhaps you are not familiar with this, but it would be wise to work on having stronger, more competent, and complete founder documents for your next startup so you do not feel that you are doing more work than these non tech founders who you feel are not pulling their weight.

Steve Procter ... Venture Technologist Tech Entrepreneur seeks sales & referral partners for www.nearevo.com

September 5th, 2018

I've been away a while so not had chance to see the other responses. But isn't the answer very simply "if you can find one and they are good at what they do and they WANT to work for sweat equity then grab them with both hands and don't let go"?


But if all the good people keep turning you down for a sweat equity deal then I'd question whether your idea is a great one and/or the deal on the table is enough.


There are people out there who will do it so make sure your deal is sweet enough and keep looking. Not everyone wants a 100k/yr deal.

Lionel

Last updated on September 4th, 2018

This is NOT unrealistic Ben. This is exactly what I do but you couldn't ask someone to work 100% next to you all day but 100% FOR your idea, Yes, if your idea is great.


Even if you pay someone more than 100k, not sure he will work FOR your idea. I definitively work for equities and was successful (maybe lucky? :-) ) enough to make money with good startups.


At mastermindstartup.com we tell our members to try working for equities only if they have the choice.


Not sure what you do need today, but let's talk for sure.


Good luck !


Lionel