Ask HN: Solo founder and MVP. New co-founder equity split?
I am a solo founder looking to bring on a co-founder. My original idea came to me over a year ago and I've worked on it evening and weekends. Four months ago, I left my job to work on my startup full-time.
I'm in my early 30's and my background is in investments and software. After college, I was a software engineer for two years before moving into asset management in a front office role. My product is built on the domain knowledge I gain in this area. It's B2B SaaS with target ~$15k-$100k p.a. revenue per customer. I've finished my MVP and am about to go full tilt into sales mode.
I would love to bring on someone to do sales. I'm in early stage discussions with a potential co-founder who is a friend and someone I have worked with. He's in his late 20's and recently completed an MBA at a top school. His background is in business strategy and analytics (sales focused). He hesitates when it comes to sales because he does not see himself as a sales person. Having said that I think he could do it and his role would evolve over time away from direct sales into more of a management role.
I feel like he would be a good fit because we get on well, he's smart and has decent experience. He is interested in startups and told me he wants to jump in with both feet. He doesn't want to make a rash decision so is holding back a bit.
His initial thoughts are he would work one day a week + weekends (his work situation is flexible) and eventually go full-time. I would love to have him full-time. He has a one month notice period on his contract.
Equity vesting would start once he is full-time over a 4 year period.
If he starts full-time in one-month, how much equity could I give him?
If he continues to keep his full-time job and goes full-time with me in X months, how could I think about the equity split?
An open Ask HN community consultation from 2018 where @Blackstone4 convened hundreds of developers and bootstrappers to share real experiences, hard numbers, and tactics.
Hundreds of active indie hackers contributed case studies, pricing heuristics, and pitfalls to avoid when moonlighting on side projects.
My bigger question is why do you want to bring in a co-founder? Admittingly I didn't read every response here, but bringing in a co-founder entails lots of specifics and has a ton of good, but also a lot of baggage (not all baggage is bad, it is just there).
Are you trying to get external financing? Are you expecting to apply to an accelerator? Do you just not have the cash so giving equity is easier right now? Are you wanting to break up the load? How does employee #1 differ from co-founder in your mind?
My 2 cents. MBA's are fine degree's (and people usually), but in a startup I generally avoid anyone with an MBA unless they have been in industry for quite a while (5-10 years and at multiple companies). And as an early employee or co-founder an MBA is a red flag to me unless that person was part of the original team.
Honestly he sounds more like employee #1, but if you are looking for a co-founder to help offset the load you can absolutely bring him in as a co-founder. Just remember if the company is already legally formed there are a lot of little details you'll have to go through on the stock issuance/vesting/taxes etc -- e.g. get an attorney & CPA to help you.
Also, if you just need sales help that is much cheaper and easier to find than going down this path. If he isn't interested in sales you really should figure this part out. That said, co-founders have to do jobs that they wouldn't normally do until companies grow, so it isn't the end of the world. But in the case of sales, it is literally the lifeblood of the company, so it is pretty critical.
My last point. A Co-founder is essentially someone you will spend more time with than a spouse for the next 10 years. You will literally be seeing and talking to this person daily for hours everyday (at least in most situations). You are essentially married to this person, and they will call you at crazy hours and you them and you'll be under stress together and separate which means you have to support each other. If you have any questions as to this person get them out and into the open and make sure they do the same before you sign any agreements. If they smack their lips when they eat and that bugs you, get it out now cause when you are stressed and pissed and on the fourth meal of the day for the third straight day you'll eventually blow (I know stupid example but hopefully you get the idea). Personally, I'd rather keep a friend and not have a co-founder than think I got both and than lose them both in a year.
He is not a cofounder, he is (potentially) employee #1.
Cofounders don't get brought on to do sales. Employees do.
Treat him like a good salesman- give all kinds of incentive payments (commissions, bonuses) contingent on sales performance, but be very shy with the equity. Plan on firing him as a default unless he exceeds expectations quickly.
Equity corresponds to risk and skin in the game, and it sounds like he has contributed (and will contribute) very little to either.
Bonuses are paying him for what he accomplishes, equity is paying him for what you have accomplished. If he's any good, he'll make more from bonuses than even a 50/50 equity split. If he's not any good, then equity will be far more important to him, locking it in before performance is known.
And having just reread your comment, a salesman who doesn't want to do sales but wants to do management? You need to interview more sales candidates. HUGE red flag.
Have a beer with this guy and have a good time, but don't bring him on. The world is full of salespeople who can't sell and can't do anything else either. They get by through others' hope triumphing over experience.
Say, while you're giving away your equity for free, can I be your cofounder too?
I've worked with plenty of startups that bring on a top-flight sales person who is referred to as a co-founder, but typically the equity grant is much lower than a typical co-founder (more in the 5% or so range). There are a number of reasons for this, one of which is that the typical first salesperson comes on board after months if not longer of product development work.
That being said, there is a reason that salespeople are traditionally paid on a commission basis. Is there a reason you want to ignore that convention and, instead, detach compensation from being directly tied to each sale? This seems like an odd move, particularly when the prospective co-founder does not see himself as a salesperson.
You can grant equity on a non-time-based vesting schedule (i.e. performance-based vesting based on sales performance), if you are not ready to start paying cash or want to grant equity for some other reason.
But this person is simply untested in this role and you will not know in a couple of months whether he should have a significant equity stake in your company. So, traditional time-based vesting (and particularly with a magnitude of shares like that that would typically go to a co-founder) is a choice you are likely to regret.
What I've learned burning through about 5 co-founding relationships over the years is that, whatever you do, you need to have a 3-month probationary period where both parties understand they can leave with minimal loss and no hard feelings. Moonlighting is fine over this period (see the point about minimal loss). If he's good and really sees value in your idea, he'll get a LOT done over evenings and weekends, if not, he's not co-founder material, period.
A cofounder needs to be ridiculously motivated, self-aware, and hard working. 95% of people who would make good employees wouldn't make a good co-founder.
Another tip: if someone is hesitant about sales, he is not for sales. Good sales requires genuine enthusiasm and persistence. Especially in the early stages, where it's all about winning hearts, and less about "sales playbooks" or established processes. I heard Dharmesh Shah (CTO at HubSpot) describe early stage sales pipelines with two words: non existent.
I've made this mistake before. Just because that person is super smart, doesn't mean he/she can pull of what you want from the person. To find out, you MUST try working with the person for a bit.
What you need right now as you say is a sales role. Then you need to find a sales guy. You can always bring in your friend later on when you need a "management role".
If you really want to try working with him, one way to try this out is to NOT bring him in as co-founder but bring him in as an employee and pay him based on commission. That's how sales people mostly make money anyway.
Then after a while if you think he really is someone you are looking for, then you can "downgrade" his salary and propose equity instead.