Questions

I'm considering a partner who would bring technical expertise to my SaaS product. He began work after we discussed 30%, now that he is months in, we both want to firm up the partnership, yet he suggested now he wants 40%. I had the initial idea, designed the product in full, have existing customers for an early version of the software, I do all the marketing, have developed strategic relationships, have won two grants, done considerable work on funding, have substantial recognition, and have incurred ALL expenses to date. I feel that 40% is too much for a CTO to build the software, am I off the mark? One tool I've used to calculate fair equity was this: http://foundrs.com, and it suggested 23%.

Sometimes the best way to break a stalemate over equity is to agree on equal shares but give someone a faster schedule or some portion vested up front — or, conversely, agree to allocate a larger percentage but tie it to a longer vesting schedule and/or milestones. Shares aren't really "owned" until they're vested.

There's no hard and fast rule about vesting any more than there is about exact equity percentages, yet entrepreneurs often assume everyone's shares must vest according to the same schedule. Instead, I recommend taking a hard look at past, present, and anticipated future investment of "sweat equity" in the venture by each co-founder. More often than not, in my experience, someone started working first/harder/longer, quit their day job, made a critical breakthrough early on, etc. — or is expected to pull the most weight in the coming months, solve thorny technical problems, recruit vital team members, and so forth. (Yes, it's a guesstimate, but the same is true of valuation and almost every other metric at an early stage startup.)


Answered 4 years ago

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