Ask HN: How should I divide equity?
18 comments
Sign away IP. You have a NextJS app. It's not worth anything there. But you did build the MVP for free (I'm assuming you didn't bill him) which is worth something.
Given that you won't be doing anything else after August. Ask for 10-20% instantly vested, or a combination of instant and scheduled. And, he has the right to buy you out in X amount of time at Y valuation i.e. 3x TTM sales.
So if the business were at $1 million sales in 2 years, he/his investors have the option to buy out your 10% for $300k. For example.
Don't do profit sharing on a pre-rev company. Pulling money out of small software company that's just getting started hurts both your interests.
Given that you won't be doing anything else after August. Ask for 10-20% instantly vested, or a combination of instant and scheduled. And, he has the right to buy you out in X amount of time at Y valuation i.e. 3x TTM sales.
So if the business were at $1 million sales in 2 years, he/his investors have the option to buy out your 10% for $300k. For example.
Don't do profit sharing on a pre-rev company. Pulling money out of small software company that's just getting started hurts both your interests.
Stock buybacks sound like they could be a fair way to structure this deal. What if the company never goes public/gets bought? How do I ensure that I get something out of this if the business becomes very profitable?
Thank you for your comment.
Thank you for your comment.
By choosing the secure path of a $120k/year salary, you are taking on a certain level of risk.
However, if you want to protect your future potential, you could retain 20% of the equity and allow for a 80% buyback option.
However, if you want to protect your future potential, you could retain 20% of the equity and allow for a 80% buyback option.
Talk about putting the cart before the horse.
The likelihood that this doesn't survive till August is much more significant than you imagine.
The likelihood that it dies a few months after you leave is greater still.
Take the 3% as schmuck insurance and move on with your life.
The likelihood that this doesn't survive till August is much more significant than you imagine.
The likelihood that it dies a few months after you leave is greater still.
Take the 3% as schmuck insurance and move on with your life.
Either this is something you believe in or not.
If you don't believe in it, maybe negotiate up to 10% and work your regular job.
If you do believe, go all in. Move back in with your parents, get a part time retail gig for spending money. This startup is your full time job now.
Sounds like you don't really think it's good to work out. What's the difference between 3% of 0 or 10% of 9.
Furthermore, once you leave the product is probably going to collapse.
Ideas are worthless FYI. What is your co founder going to do when you leave ? Hire someone ? Find another person to build it ?
If you don't believe in it, maybe negotiate up to 10% and work your regular job.
If you do believe, go all in. Move back in with your parents, get a part time retail gig for spending money. This startup is your full time job now.
Sounds like you don't really think it's good to work out. What's the difference between 3% of 0 or 10% of 9.
Furthermore, once you leave the product is probably going to collapse.
Ideas are worthless FYI. What is your co founder going to do when you leave ? Hire someone ? Find another person to build it ?
Actual investor here... The other advice I see is baloney.
You get 50%. Your partner gets 50%. If and when you actually leave, then you renegotiate based on actual future contributions of each of you, maybe let your partner increase another 10-20% over time.
Avoid VC money like the plague...
You get 50%. Your partner gets 50%. If and when you actually leave, then you renegotiate based on actual future contributions of each of you, maybe let your partner increase another 10-20% over time.
Avoid VC money like the plague...
50% vested monthly for 4 years until August is only about 6%.
The "Slicing Pie" model has some ideas that might help you
https://www.google.com/search?q=slicingpie
https://www.google.com/search?q=slicingpie
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I bookmarked this a long time ago, it could be helpful: https://gist.github.com/isaacsanders/1653078
This is, I believe, a copy of the article "Joel Spolsky on Equity for Startups". It's a very short read.
This is, I believe, a copy of the article "Joel Spolsky on Equity for Startups". It's a very short read.
3% is quite low if it's true that you've done most of the product.
But disregarding that, this thing is DOA.
• You haven't touched the market, have you done at least some sort of market study? (inb4; nope)
• One of the co-founders (you) is leaving.
• You and your "partner" are definitely not friends.
• Your product is an MVP in NextJS; is it also yet another OpenAI frontend? That has close to zero market value. (Although in the current environment you could raise a few million with that, lol. Note: you could raise != you could make.)
Because of all these reasons the chance of this making money irl is very slim.
What you both have to do is call it a day, stop fighting over literal pennies, end it up as gentlemen and then go on with your lives and find people that fit both of your desires and lifestyles more appropriately.
But disregarding that, this thing is DOA.
• You haven't touched the market, have you done at least some sort of market study? (inb4; nope)
• One of the co-founders (you) is leaving.
• You and your "partner" are definitely not friends.
• Your product is an MVP in NextJS; is it also yet another OpenAI frontend? That has close to zero market value. (Although in the current environment you could raise a few million with that, lol. Note: you could raise != you could make.)
Because of all these reasons the chance of this making money irl is very slim.
What you both have to do is call it a day, stop fighting over literal pennies, end it up as gentlemen and then go on with your lives and find people that fit both of your desires and lifestyles more appropriately.
This app does not use AI at all (nor is it AI slop—I used AI very sparingly to build the product). The app uses NextJS and Postgres, and it’s mostly CRUD and a bit of scraping+caching behind the scenes. It does solve a business problem that we’ve validated with a pre-MVP (low-tech Google Forms + Google Sheets + Twilio) via waitlist members.
The free version of our MVP is ready to launch to general users, though, and the only thing holding us back is that we haven’t signed an agreement about compensation.
We’ve already identified/communicated with some potential customers, and deals with these customers are typically 40K+/year based on our research (FOIA requests to public institutions using competitor products). Based on what’s built (and what I could finish building by August), I think I’d we’d have a fairly competitive offering in the market we’re targeting even if we changed nothing after August.
This risk of “dead equity” to future investors is why we have discussed doing profit sharing. Does this info change anything? Got any alternative proposals/advice? Thanks for your help—it is very much appreciated.
The free version of our MVP is ready to launch to general users, though, and the only thing holding us back is that we haven’t signed an agreement about compensation.
We’ve already identified/communicated with some potential customers, and deals with these customers are typically 40K+/year based on our research (FOIA requests to public institutions using competitor products). Based on what’s built (and what I could finish building by August), I think I’d we’d have a fairly competitive offering in the market we’re targeting even if we changed nothing after August.
This risk of “dead equity” to future investors is why we have discussed doing profit sharing. Does this info change anything? Got any alternative proposals/advice? Thanks for your help—it is very much appreciated.
Ok, then, why are you going for a 120K/year job, which will most likely destroy your soul after a few years, as all corporate jobs do, if you have "several potential customers" worth 40K/year each?
If you knew for sure this thing was worth what you say, you would stay. But it's not worth that, it's imaginary, and you know it.
Tbh, I'd just move on. Learn from the exp. etc. You deserve to get what you want, and the other guy deserves a real co-founder (no offense to you).
Just go find new things to do, also you mentioned you were in college, you still have like 100 shots left to take on.
If you knew for sure this thing was worth what you say, you would stay. But it's not worth that, it's imaginary, and you know it.
Tbh, I'd just move on. Learn from the exp. etc. You deserve to get what you want, and the other guy deserves a real co-founder (no offense to you).
Just go find new things to do, also you mentioned you were in college, you still have like 100 shots left to take on.
Yeah, this is a great point (and no offense taken—I appreciate the real talk even if it’s a bit painful to hear). I’m taking the other job because the risk is so much lower. And while I do believe that this business could potentially make me more money/be more fulfilling than a day job, there is a huge amount of risk that we’d never make any money and that I’d be forfeiting a guaranteed high salary. We’re still a ways away from making enough revenue to warrant me forfeiting the salary job.
I appreciate your insight. I’ll definitely keep this in mind. Even though I want to get my slice, I also want to be fair to my partner. It might just be that we’re not a good fit for each other right now.
If we can’t come to an agreement and I have to exit, do you have any suggestions about what to do with the app (I currently own the IP for all the code)?
I appreciate your insight. I’ll definitely keep this in mind. Even though I want to get my slice, I also want to be fair to my partner. It might just be that we’re not a good fit for each other right now.
If we can’t come to an agreement and I have to exit, do you have any suggestions about what to do with the app (I currently own the IP for all the code)?
Why don't you launch now together?
It will clarify the business value and you still don't have an issue
It will clarify the business value and you still don't have an issue
[deleted]
literally fighting about nothing
zero users, zero sales, jesus
zero users, zero sales, jesus
3% of 0 is the same as 10% of 0
I’m working on a startup with a partner, and we’re struggling to figure out how to divide equity. We are very early stage and have not launched yet.
I am a software developer (technical cofounder), and my partner is handling the business side of things (non technical cofounder). We’re both working part time on this venture because we’re both still in college.
Normally, the advice is roughly 50/50 vested over 4 years. The complication is that after next August, I will be working at a company that disallows working on side-businesses. The job I am taking in August is with an established company for 120K/year before benefits. I’m nearly certain I will have to leave our startup because I’m not willing to risk my job (and the benefits of having a high paying job this early in life) for this venture.
I’ve got a fairly significant technical background (internships, lots of experience in open source outside of school), and I’ve already built out an MVP (NextJS app) that I have not signed away IP rights to. My nontechnical cofounder has drive and motivation, but he does not have any prior sales/marketing experience, and he does not have any industry connections we’re relying on. My non technical cofounder came up with the idea. He has also helped build a waitlist and gathered data about our target demographic. I do believe that if we had more time together, this venture would be successful.
My partner suggested that I take 3% fully vested once I leave in August. I think this is a low offer given that I have written an entire working app already. My partner offered this amount after seeking advice from VC advisors that are potential future investors (even though I don’t think we will need investment because this business is 100% bootstrappable). He made a second offer for a profit sharing agreement that terminates after I have earned $2K (also a bad offer imo).
I countered with 10% fully vested after August. This will be a minority stake, though, and after his initial low offers, I think I want to receive a mix of equity and guaranteed revenue sharing (not really keen on letting someone else profit off of my work without getting a kickback).
Given all of this information, how would you approach this situation? What kind of offers would you make? Should I just leave and take my IP with me?
I’ve struggled to find good advice. I am very appreciative of any help.