In venture-backed startups, cofounders have a strict definition. People who do this, get double digit equity. Nobody else does. Here is the definition: They are full-time, committed for the next decade, and critical to the business. People who were there from the beginning aren't cofounders by default. Part-timers aren't cofounders, yet. At least their vesting shouldn't start yet. Part-timers that never want to be full time? Advisor with 1% or less. Aren't committed for a decade? Equity from the employee option pool. Put money into the business? You are an investor not a cofounder. You would be suprised how many times startups blur the line between founder, early hire, advisor, and investor and mess everything up. If you happen to do both, or move from one to the other, be very clear via which track you earned what equity. They are not the same. #startups #founders #venturecapital
The question is- why does this matter? A lot of startups will value the contribution of certain individuals that are advisors or not co-founders by giving them double-digit equity because that is the only compensation they have to give. Does that turn VC's away? If so, why? If the VC will still get the same amount of equity for their investment, why does it matter?
Additionally, how much would you recommend reserving for early hires? I'm thinking 40-40 + 20% reserved, but am unsure. It's true that no successful founder ever thought that he should have given their first hires LESS equity, but I'd like to hear your experienced opinion Cash Allred
Facts. More on splitting equity between founders here! https://carta.com/data/how-co-founders-split-equity/
I went to a Silicon Slopes event where you talked about this in depth, loved those incredible insights!
It's not always that simple, though. My first company I had to work my 9 to 5 pay the bills and spent every night and weekend coding the product. Got it done, customers loved it, got funding, and THEN quit my job to go full time... and I'm not a founder?
This is so true. So few people understand this. And then it’s awkward. Like should I sit down with them and explain they aren’t a co-founder?
You just ruined 50% of LinkedIn web pages.
Open question to anyone!... 👋 Im the sole founder of a startup, I have built and released my mvp (hired help as necessary) and currently have it in the market. Despite my current limited resources, it is growing daily and I can extrapolate with some confidence that it will function as intended and make a profit.. It is also very scalable internationally. Im looking to raise a pre seed round asap (<$500k) and bring on 1 or 2 co-founders (dev + sales).. 1. How much equity should I offer them? (Assuming there both similarly experienced) 2. Is it bettet to raise before or after bringing in co-founders (assuming i can do either) 3. Does having a developed product in the market and cash to pay a wage (modest) significantly reduce the amount of equity expected to give a cofounder? Not fussed about giving up a few points to someone legit, I just want to know where I stand and whats reasonable. Thanks 🙏
Sure this type of post appeals to the masses. It doesn't really touch the real point though. Trading on value, not time. I refuse to put the amount of time I will spend on something because its irrelevant. If I'm working 70-80 hours a week on something its going to be clear to the people around me. I'm gonna be stressed, close less deals and perform worse. As a founder and entrepreneur you must not tie your self down to time.
Over 1,000 83(b) elections filed online @ corpora.us
2moAll great points, and I especially want to emphasize the last statement: being very clear in tracking the source of equity in case you wear more than one hat. The most common scenario I've seen is founders also investing in the startup. The easiest way to screw it up? Paying in your investment as the purchase price of your common stock. With that, you've just: - Skewed the fair market value of your common stock, potentially hurting future hires, - Created a paperwork headache for your future priced round, since now at least one investor has common stock instead of preferred stock. Generally, my suggested solution for founder-investors is either investing via founder notes or else via an MFN SAFE, which will take on the terms of your next bona fide raise.