legal, co-founder, non-disclosure-agreementEvery startup situation is unique. How should a startup founder’s agreement be structured for the below situation?
I currently work as a software developer as a full time employee. I am roughly in mid-career. I have a good track record of successful projects. I could easily “ride” the next twenty years of my career as a full time employee or software consultant. However, I have been hoping to become a founder at a tech startup. I am confident I can contribute technical know how and implementation. It has to be be a venture I believe in.
I having conversations with a guy from the financial industry. His background is economics and some self taught technical skills. He has a good track record working for various financial institutions.
For the last year he has developed some original IP on his own and wants to do a start up. He is just about to start shopping his product to customers. Although he has implemented some simple software systems, he now needs real software development to scale it up to a working system. If his idea has some merit, this could become a business which is a wonderful thing.
At this point I am interested enough to work on his technology nights and weekends for the promise of “sweat equity”. I would keep my FTE status at this stage, and do this part time until this venture either took off or not. I have worked as an independent consultant before, and I charged a good rate. I know what my time is worth on the market. It is more money than he could currently pay for a product with no revenue.
We are about to negotiate an arrangement. How to do this? What is the best way to structure this as a win win agreement.
I want to be fairly compensated for my time and knowledge and ideally take a significant stake in the future business as a co-founder. He has more at risk since this is his IP and its his full time effort.
What ever agreement we arrive at would have to work as we grow the business and maybe take on other founders, investors and eventually hire staff.
What should we try to agree on given this situation?
It sounds like the founder has made good progress. Sounds like he has a minimal product and is now trying to achieve a market fit for his product. You have to weigh that against what you would be bringing to the table. Would your involvement be critical for him to take this to the next level? Or could he do that without you?
That may help you get a feel for what you feel would be a fair equity stake to join as a part time equity only resource. Then reverse the roles to try and see everything from his perspective, what do you think he would see as a fair split?
Once you figure out what you’d be willing to agree to you want to make sure all expectations are captured in a legal document. If no operating entity has been established yet this would be the time. Could be something as light as a founding partner’s agreement. In addition to outlining split of ownership it should address time commitments, existing IP, decision making process, vesting, etc. Nothing should be left to a simple understanding between you.
Good luck!
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