Questions

I am currently a sole founder. I am not an engineer. This is a technical startup. So ideally I need a technical co-founder to join me. I'd been planning to just hire a couple engineers to build out the MVP, but this engineer and I really hit it off, and I'd like him to join the company as a co-founder. He also needs to be paid a full salary. I am self-funding the company to MVP on a bootstrapped budget. So two questions... 1. If he didn't need a salary, how much equity would you give him? (just looking for a range)? 2. Since he does need a salary, how much equity would you give him on top of the salary? (again, just a range, please)

The best tool for this to provide you the ranges you're looking for is http://foundrs.com/ where you can plug in what is expected of each individual and get a suggested equity rate.

I would say that anything under 33% for a true technical co-founder is not proper incentive for this crucial role. The great thing about the equity calculator is it allows you both to have the conversation based on the inputs and arrive at what you both feel is fair.

The more you can de-risk your startup prior to this person joining, the more leverage you have. De-risking factors:

Funding / Revenue: If you've raised funding or have revenue (even small amounts), this should provide leverage (thus potentially decreasing the co-founders equity).

Customers (even trials): The more you've been able to do without the co-founder either by yourself or through outside contractors to get customers (even non paying), this is another point of leverage.

Of course, these two points work the other way too. The less these things are in place, the more dependent you are on their talents.

With respect to salary, I like to offer a range for the person to choose their own deal. In other words, offer a top-end and a bottom-end of equity, the bottom-end being you pay their full salary requests, and the top-end being no or deferred salary until funding.

At the end of the day, you both need to feel that the arrangement is fair and comfortable and that you are both aligned to see the business succeed, so really it's about having an open and realistic conversation, which is a great way to establish the kind of relationship you'll need to work together.

Given the complexities involved, I'm happy to have a conversation with you to expand on this answer and provide you more specific context. And last of all, make sure you are both on at least a 3 year vesting agreement, and if not 4. This ensures that if mistakes are made, it doesn't ruin your cap table!


Answered 7 years ago

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