Three co-founders Equity question?
Hi, I once had an idea for a SaaS and built a prototype for it. It ended as a usable MVP and I use it myself.
I knew two other developers that got interested in the idea and would like to contribute and be part of it.
We are all technical and I conceived the idea and built the MVP a by myself.
Now, when they want to join in this phase, what you think would be fair equity distribution?
What you think about:
Option one:
Me: ~33%
Them: ~66% (~33% each)
Option Two:
Me: 45%
Them: 55% (27.5 each)
Option Three:
Me: 50%
Them: 50%
I'm really confused about what would be the fair distribution to start with.
One of the developers suggested to have a clause where we can review the equity after one year, but I think we can try to get it the most fairer as possible in the beginning, so my greedy mind wants the 50% option...
What are your thoughts and experiences in this scenario?
Thanks in advance
I usually go equal split in a very early stage because if the product ends up successful, you will work on this for years along with all your partners, so most of the work is ahead of all of you. Also, this is the easiest to agree on. However, some general advice:
Agreed. Do not forget about vesting.
Thanks. I confess I know little about vesting or equity or anything... If I split equally the 80%, is vesting applied to the given equity to these two developers? What would be a common vesting model for this case?
Take a look at this https://stripe.com/en-ch/atlas/guides/equity
Thanks for the article. Very clear.
Sounds like you're being far too generous. What have they done thus far beyond expressing an interest? What are they bringing that is worth giving up 50%? Whatever you decide make it conditional on meeting certain milestones.
BS
Btw this is a very good question and hard to answer. Since you are very early in the process, everyone 33% sounds fair but I'd opt for following spread:
Depending of your local laws and the shareholder contract, one, eg you, should have the majority of the voting rights. This could be 50.1% or 75.1%. Again this depends very much on the legal context.
Why? It's very easy to get into a blocking state, means once people have disalignments and cant get out (which always happens) the entire company is fu*ked up. So, you need one entity who can still decide and move on despite having conflicts on a shareholder level, even if you need to buy them out without asking them (google 'bad leaver').
The bigger challenge is to justify a much bigger chunk towards the other guys. But that's usually easy if you prepare it and think through it well.
Every compromise you do now will weaken your position in later stages leading to broken and tedious negotiations over months because you cofounders could block decisions.
The drawback of this approach is that you are not really on the level of your cofounders and they might feel inferior which could lead to odd group dynamics.
Thank you, guys. That was very helpful and not feeling so lost now. We still need to validate further the idea and we have some meeting to go through. After we have more validation, everything said in this thread will be extremely useful.
This comment was deleted 3 years ago