Founder Agreement · Founder equity

Two founders coming together, does this kind of merger make sense?


January 18th, 2017

A fellow entrepreneur (solo) has started a SaaS company (A) and is on it for the last 2.5 years. He has bootstrapped the company and has been getting paying customers in the last 3 months. From what he has shared his MRR is in 100s from 3 customers.

He has got to know this other entrepreneur who started a SaaS company (B) 3.5 years ago with a full team, got into a top accelerator and seed investment of 120k+. This company has started getting paid customers in the last year and their MRR is 4k from 10s of customers. But then in the last year his co-founder, early engineer, sales guy have left and now he is a solopreneur himself. The seed investment is all down to zero, co-founder walked away with 25% vested and now the founder is starting to (re-)build the company.

Interestingly both of them are solving a real problem in the same domain and target persona while their start point and approaches are very different. They are spending some time to see if they should unite.

The proposal seems to be that company A would close down and both will focus on company B. Founder A will get compensated in founders equity of x% that will vest over 4 years (with a cliff clause).

My advice to him was that a) first and foremost date each other and see how well can they work together.

b) Make sure you get equity that a co-founder would deserve. So perhaps 30-35%, given the other founder already has 45-50%. That would mean diluting the co-founder that walked away with 25%. Are their better or recommended ways to structure this?

What other suggestions would you have? What other risks do you see?