I concur with that advice, it seems that the startup founders are looking for a naive young guy to work for free before getting some funding. If you (OP) are really interested in that position and trust the founders (I wouldn't, but I haven't met them in person, so who knows?), then you should become a co-founder and ask for significant amount of equity in the company (10% at least).
Read OP: "But I 100% understand the value of a tech co-founder, and am not looking to be stingy with equity. I know I can't make it succeed on my own."
Not mentioning exact equity, how do you assume 5%!?!?
It is very common for cofounders at an early-stage startup to take no salary.
In my eyes, in this situation you are either looking for a co-founder, and give them equity accordingly, or you treat them as an investor who happens to "invest" with work.
The former means giving more than you would to an "employee" and giving shares rather than options, and giving them a real say in the business.
The latter means going to people like me who earn well enough from consulting etc. that we can afford to spend some of our time on startups without getting paid in cash fully knowing it's a high risk thing, and who will insist on seeing your cap table and investment prospectus so that we can judge the risk, and who will insist on terms that provides additional security.
Note that in the latter case my first question would be "why haven't you been able to find an investor yet"?
I've talked to people who have had convincing reasons, but I've also talked to people who presented me with investor decks where it took me 5 seconds to see why they'd failed to secure investors.
Personally I don't think devs who are inexperienced with startups should consider those kind of arrangements. For me it's kind-of a fun gamble that I take on the side of making more money than most from my paying clients - I expect most of the won't pay, but that's ok.
It sounds like you'd be more or less a co-founder. Why are you only getting 10% and not 1/3? Do you really think their "idea" is worth that much? Ask for 1/3 and align your interests with the other co-founders if you really want to do this.
Be very, very careful doing this. The biggest problem is that many investors see it as a red flag if a person who is not involved with the day-to-day running of the startup holds significant equity. Equity seems cheap when the company is worth nothing, but it will be near and dear when you are seeking investment, when you have dozens of employees who would go to Google if it weren't for their stock options, when you and your cofounder are deep in the trenches and want to quit, or when you're trying to hire an executive. And if he holds a significant fraction of voting shares, you may need to consult him when you do something significant like sell the company or issue new shares, and if he's no longer involved with the company that can introduce delays when you can least afford them.
Also, typically marketing a product in the early stages involves making really significant changes to the product itself. You can't just hand it over the wall as-is and expect someone to drum up a million downloads. If you lack marketing experience on the founding team, you may be better off just bringing on a full cofounder who shares your vision but is comfortable going out there and talking to customers.
I would say the advice should be: don't offer equity too soon. I've met some random "business guys" at conferences who offer me an equity stake in their startup within moments of meeting me. That smacks of desperation and turns me off. It's like dating, the legit business guys who've interested me have got to know me first before discussing startup ideas.
In particular, offering equity as part of a freelance arrangement is just dumb all round. It's a lose-lose situation.
A freelancer wants cash, not lottery tickets in your non-existent startup. And giving away a chunk of your company to someone who's only going to be around for a few months hurts you too. I know there's one UK startup that was founded that way (built by a web agency that got a chunk of equity) and it caused no end of problems. Either get a co-founder who's in for the long haul and reward them with equity, or get a freelancer and reward them with cash.
Do you actually know how many shares the founders have received? And how does that compare to what you are being offered?
There is no standard definition of "founder" or "co-founder." They could offer you half of what they are getting and refer to you as a "founder." I assume that wouldn't solve your concerns.
I'd put the title aside and think about what you are actually looking for from this experience. It goes without saying that you should be getting a very significant piece of equity if they expect you to work for free. You are taking a huge risk. But I get the impression there is something else about the "founder" designation that is meaningful to you. What is it?
I am in a very similar situation right now. Near graduation in the spring I joined a start-up I was really excited about as a sort of unpaid intern - I basically offered to help them out free of charge. Unlike the article though, I was not friends with the founders beforehand, I found out about them online. I was their first "employee" however. The two founders and I worked hard towards our product launch in July and it was a great success. Everyone loved the product, and it was obvious that I was now a vital part of the company, even though my title at that point was unpaid intern. Afterwards I brought up compensation for the first time. Knowing they wouldn't be able to afford a salary, I pitched 2% a month of equity for a year, ending with 24%. The problem thus far is that our product is a small airplane (gasp not tech!), which costs $55,000. Despite the tremendous positive feedback we've gotten on the plane, no one has pulled the trigger in the month since our launch (not a huge surprise since our financials have us starting out at 1 sale a month for our first year). It is enough however to make the two founders wary of how much equity to give as they have absolutely no clue what the current value of the company is.
Our current deal is that I'm given a monthly stipend for a few months while we process some sales and get a better idea of what the company is worth, so that I can be compensated accordingly.
I've been wary so far of considering myself a Co-Founder, since I took no part in the original idea or the funding for the company. From what this article is telling me though, I should absolutely be considering myself a co-founder.
If this is the case, how much should I push for in terms of compensation? Is 24% a reasonable number to go after considering the facts? I'm trying to look out for my best interests but honestly just have no idea what I'm doing. Any advice from HN would be greatly appreciated.
I've been approached a dozen times by business people offering me equity for my development time. I committed to and completed three projects and nothing ever came of them. Thankfully it only amounted to ~1000 hours among the three projects, but it's still time I wasn't paid for.
A technical co-founder with no work experience doesn't sound like much of a "technical" co-founder. Has he worked on any sort of open source projects, done research at a university, or anything that could be considered experience? If not, then it's not a good sign.
If you can afford to spare the time, then by all means take the opportunity, but I'd ask for 33% and wouldn't settle for less than 25%. Just state that you feel you'd be playing an important role in the product's creation and expect a more equitable share. You're allowed to put any price you want on your time. If they're confident the venture will succeed, then they should relinquish some of their share, otherwise they're being a bit greedy.
Here's the story. Company A is a new startup with one person. This guy has already invested a considerable amount of his personal money (more than a million) to purchase the domain name and a few other assets from an old business.
He has great business/sales/management knowledge and is someone I've known for years, but has no technical background. I'm a developer, and he wants me join as a technical co-founder. There's a business plan, but no prototype yet.
I was offered 2% equity (vesting over four years) and a fair salary (less than I made at my last job) plus benefits to join this company.
I thought the equity seemed quite low for being a technical co-founder, even though the sole founder has already invested quite a bit. There's also less risk in the sense that he has the money to pay me a salary.
What do you all think about the equity being offered, given this situation?
You just got out of college and you got some equity and you don't think its enough? Wow... If were the founder I'd wonder what a recent grad had to offer to get any equity at all... Even if you got 1% or 2% the company would have to be worth hundreds of millions for you to see big money... and if its going that good then option and stock grants will be available to good employees. Don't try to hit a home run on your first time at bat. If you don't strike out... you're doing better than most.
However, I think you're looking at this the wrong way. Most startups fail.. you should be angling for more base and not worry about the equity at this point... get the experience and add it to your portfolio and look to your next job when this company tanks
i would only ever join a startup as a co-founder. i would never own less % than anyone else, i.e. at least one other founder should have the same equity as i do. that's my personal heuristic, ymmv.
if i'm going to work for someone else it's going to be the most stable situation possible, i.e. an established company with market or better salary and benefits and a reasonable workload.
>Be conservative with your equity. One of the easiest ways to scare off a technical co-founder is to offer 50% of your company in an initial email or meeting. Freelancers in particular take this as a sign of your trying to get free labor. 50% of nothing is still nothing.
I completely disagree with this. You want to find a co-founder, not an employee. In the early stage your technical co-founder will be doing 90% of the actually work. To offer them a small equity stake because it's your idea is an absolute joke.
I think you have to find a couple of possible co-founders, evaluate who you want and who wants to join, and have a frank discussion with them about an equity split.
It's really hard to recommend in the general because you might find a co-founder who brings so much to the table (money, skills, relationships, experience) that they deserve 50% or more) and you might find one that only brings technical skills in which case the amount might be much much less (15-35%).
It's really all a negotiation, but you can't figure it out until you know who is interested in joining. Maybe no one will be and all this discussion will be for naught.
This advice (and much of the advice in the thread) pooh-poohs what they've done and says that you should be a cofounder. I think that the offer does not fairly reflect your value, but this advice also doesn't fairly reflect what they've brought to the table.
If the company has created a prototype that's received $150,000 in crowdfunding support, that's a tremendous accomplishment. The existing founders have conceived of a product, prototyped it, and validated it in the most significant way possible - with customers who are willing to not just pay for it, but pay for it far in advance.
Let me put this in perspective: on Kickstarter, raising $100,000 puts a company in the top 0.2% of successful campaigns [1]. If you include all campaigns, they're rarer than 1-in-a-thousand. Due to selection bias, we hear about these >$100k campaigns preferentially, but the company is breathing rarified air. That indicates there's real value that's already been created by the founders.
That said, 2% and a smidge over minimum wage isn't right either. The compensation hit you're taking is so significant that the equity position should be larger. I would be looking for something in the 5-10% range. The question I would ask them is this: the accelerator put in $50k. You're forgoing much more money than that. The accelerator got 6%. Do they expect you to provide more or less value over the next four years than the accelerator did in 3 months?
Also, while verbal promises are legally binding (in the US and I believe in the UK as well), they're hard to prove. The suggestions to get the "salary after funding" agreement in writing is a good one.
It might be useful for some money, if he's paying up front. But the equity is probably not worth anything. All they have is an idea. Their contribution isn't worth 50%, much less 90% of the startup.
If you want to start a startup, you are better off going to hacker meetups, or getting a job at another startup in order to gain more relevant experience and connections.
I am thinking about accepting an offer to join a startup with two founders (one technical, one non-technical) to be the first employee in a Biz Dev role. The company has no funding and a prototype will release in 1 month. I think the founders have been working for 5-6 months on it (probably 75% of their time in total).
They offer no salary, but a 1k / month stipend, and a very fair commission structure for sales revenues I bring in.
They offered me 1.0 - 1.5 % in common stock equity that will vest (as will theirs) over a typical 4 yr / 1 yr cliff path.
I feel that the equity offered is too low, given that my joining is a risky investment for me financially, similar to theirs as founders. What do you think is the appropriate amount of equity to ask for?
Well, if you expect them to work for free, on your idea, then I personally would not agree to anything less than 50%. Almost all startups fail, so I'd be buying a (very expensive) lottery ticket. Keep in mind that I could be working on my own idea instead if I could afford it. Very few ideas are attractive enough to persuade me to join.
But if you're ready to offer some salary (even if just 50% of the market rate), then of course 50% equity would be too generous.
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