Cofounder · Equity

Part timer co-founder how much equity ?

Alex Kim Tech @ Chatgrid

August 12th, 2015

I am a technical founder and my product is in market for 2months. I got some early traction with 6 active customer and 20+ trials. And just added referral partners to accelerate progress.  I already have engineering team(4 full time engineering, 2 part time) improving products. Most of my challenges are coming from legal, marketing and sales. so I was looking for business co-founder to go next level.

I met a potential co-founder, His background is not business. He has a good track record as his field of work. 70% duplicate with my specialty. He only can join as a part time until business get funded and pay his full salary. 

If you are a investor, will this a good team? or 
Let assume, he join me, what would be fair equity to offer him while he is part time? 

Or should I continue to look for business side co-founder?

Mike Moyer

August 12th, 2015

Contrary to popular wisdom, there is a simple formula for determining exactly how much equity this person should get. It's called Slicing Pie and it allocates equity using a formula that measures the relative value of the risk taken by each participant. It is the most accurate and fair way to split equity on the planet. It will also tell you the right buyout price, if any, when someone leaves the company.

Every other method is based on guesses, negotiation skills or predictions about the future. On the Slicing Pie model provides an objective, unambiguous calculation. 

I've written a book about how it works and you may have a copy if you contact me through SlicingPie.com.

-Mike

Andrew Lockley

August 12th, 2015

It's a good team if it's a good team. Who cares what anyone else thinks! Does it help you deliver? Do you deeply trust each other and share beliefs and values? Have you got through tough patches together? Do you enjoy the working relationship?

Stas Khirman SVOD Conference CoChair

August 12th, 2015

probably not - as an investors i'm looking for co-founders with complementary skills. Beside it - if one co-founde is working full time, teh second has to do teh same.. Otherwise he/she is not a cofounder but hired hand... But it seems you know answers already ;-)

Chris Gorges Partner, Strategy at Rocketure

August 12th, 2015

If you do bring him on part-time, this may help:

http://foundrs.com/

Michael CISSP Attorney/Consultant at Self Employed

August 12th, 2015

I agree with most of the posts that your co-founder should be someone who's skills complement rather than duplicate yours.  

That said, if you come across someone who is a rock star and can add value to your company bring them on.  That should be tempered with the perspective that they need to understand the opportunity you are presenting.  They should feel the same way as in "if you see a rocketship, get on it because it doesn't matter where you fit now as it will work itself out later."  This person may not be a co-founder but they still may be a worthwhile member of the team. 

Peter Mansfield Accomplished marketing pro focused on user acquisition, partner development and branding in venture/tech

August 12th, 2015

I've been a part-time co-founder numerous times. Based on my track record in building out the early stage marketing for startups, VCs, angels are fine with this role. 
I usually get less equity than the full time co-founders -- somewhere between 5% and 10%.

Paul O'Brien

August 12th, 2015

Very passionate about this question as I've found in my time in Silicon Valley and Austin, TX that local ecosystems deal with equity very differently.  Some consider equity ownership, some consider it merely a form of compensation.  Some think of dealing it is as fostering loss of control, others expect you deal with equity as it implies your passion for a team, shared contribution and wealth creation.

Bottom line, I think you need to think of equity in three ways and the third is that which people least frequently consider:
  1. Value of the equity
  2. Likelihood of outcome: equity is effectively worthless without an IPO or acquisition unless you are the majority shareholders
  3. When does it cliff and how does it vest: No, you don't need to (shouldn't vest 1 / 4)
  4. Message that it sends to the employee, partner, investor
Equity establishes commitment, trust, and intent.  I like to encourage that founders work through those questions backward rather than 1 - 3 as is typically done.  Why?  First consider the message you want to send to everyone involved.  Do you share in the wealth and decisions in the business?  Are you willing/able to let go of ownership for the sake of building a team that is rewarded?  What do you want your investors to hear?  That you control the company or that you have a team of folks invested in it's success?

There is NO right answer in that regard.  The ideal answer is that in which you believe and commit.

Our second question, working backward, is about cliff and vesting.  Appreciate that you are still sending a message.  1 year cliff and a 4 year vests essentially says that we treat you no differently than a regular employee (as this is standard).  You can cliff earlier, later, and vest more quickly or slowly; each of those considerations sending a message about trust, expectation, and commitment.  Consider that it speaks VOLUMES when you grant someone equity immediately vs. making them work for you for a year before they get anything.

Then you ask the third question... given how you want to communicate the impact of equity, is it actually going to be worth anything?    This is a critical question as most founders don't appreciate that unless a company is going to be acquired for hundreds of millions of dollars, equity isn't worth much to those left over after investors, debt, etc. get their share first.  So it is realistic that you will have such an outcome?  To what extent is it likely better or worse than you hope?

Now what's it worth.  What's it worth today and in the future?  How does this co-founder / partner change future value and likelihood of that value being realized?  

Only after answering all of those questions can you determine how much they should get as you can then consider the grant as clearly as compensation.  Given the amount of work they do and their time committed, you'd pay them X which means they'd get Y in equity.

Quite a bit more perspective here:

Bill Warner Managing Partner of Paladin and Associates

August 12th, 2015

Keep looking. I think you are getting the message from the other comments. Investors want "rock stars" running the company. You partner should be someone who has business success in the market you are entering and can create business growth immediately just on their personal connections. Anything less is a non-starter.

Bill

Juan Zarco Managing Director, Silicon Valley Ventures Growth Partners llp

August 12th, 2015

Nothing in this business is written in stone.  However, investors are predictable and look for co-founders to a) know each other well, and b) have complementary skills.  It sounds that this guy has 2 strikes: a) he still very technical, and b) cannot invest full time in your fast growing business. And since investors look for reason to say "no", that might hurt your future financing strategies.  

So keep searching for a viable business type person. 

Thomas Kilpela Founder, Managing Board Member at Innovation Shores Angel Network LLC

August 13th, 2015

Alex Sounds like you need a partner with some business experience if you find someone with business experience I would offer him some equity