tech-company, equity, founder, salaryA startup founded by one person sets its wheels rolling on January 1, 2013. For the next year and a half, this founder is primarily involved with business development and partnership building tasks. The start up is pre-revenue and pre-funding. She has turned down one investment offer that values the company at just about a million dollars.
Web application development was outsourced but failed due to the development shop not being incentivized with enough money.
18 months in to the project, I came on board part-time in a move to bring development in-house. I provide development expertise, project management skills, and IT as well.
I have spent the last three months (approx. 25 hours/ week) proving myself in this role and the founder is happy with my work. The founder now sees me as the VP of Technology (has titled me this way in all pitch decks). She has recently presented me with the following offer:
From all the literature I have read…
I am not a co-founder because:
I am not the first employee because:
What is my status at this venture? Should I ask for a higher salary or higher equity to tip the scales one way or the other?
Edit: self evaluation of my role…
Absolutely. Had I not done the work I did and continue to do, the company would not be able to have some of it’s key differentiating aspects versus competitors. The founder would have not been satisfied launching the product as it stood in it’s previous iteration.
Long term. We have even discussed hiring 2-3 other developers/engineers to work with me in the next 12-18 months.
You are correct that you are not a co-founder for the reasons you stated.
You are the first employee, whether you are happy with the salary or not. You need to check that the 10% of the company shares you’ve been offered on your tier is not going to be shared between new employees who will be brought in at your level. e.g. VP of marketing/sales. i.e. Is the 10% solely yours?
See Joel’s answer to dividing company shares here: https://startups.stackexchange.com/questions/2/dividing-profits-amongst-developers-and-designers
If the 10% is solely yours then you need to weigh that against the salary. It’s a trade-off that could be worth it.
If the 10% is shared and could/would be diluted by further VP’s then you need to weigh that up too.
From all you say, your status is unclear, when it really doesn’t need to be. In my view, you need to discuss this pretty urgently with the founder, and get something in writing, because you’re pretty close to acting as a volunteer living on hope.
If you are valued, making a difference, and a key part of the core team then at the very least I would be looking for a sweat equity agreement based on salary sacrifice that sweeps up your past work and the future through to funding. That way, instead of hoping for a future deal that will regularise your position, you would be earning your way in. Whether that would constitute “cofounder status” is up to the founder, you and other key players. The term often has significance, but it isn’t a status as such. Typically it at least means that if there’s more than one share class, your equity is the same as the founder’s.
There’s a risk that such a conversation would end badly. But if it does, what does it say? If it turns out that you’ve been hired as an unpaid intern, or that the founder is never going to agree to anything ahead of an investor coming on board, you need to know that now and keep your options wide open.
“Founder” is really just a word. I don’t think you can lay claim to it, or “co-founder” based on what you’ve written, but that doesn’t mean that you can’t ask about it. Chances are she would reject the idea, but of you see yourself as not merely filling a development role, but significantly guiding the direction of the company and taking on significant risk then you might have a reasonable argument for asking to be considered a co-founder. If you don’t make a large portion of the business decisions though, I wouldn’t bother.
I would suggest that if you do want to title, you make it as part of your counter offer.
The offer itself suggests that she doesn’t see you as a founder in any capacity. Founders are given shares in the company, not equity that matures and can be diluted.
You are in a position of good leverage. Decide what you want, and ask for it. If you want to be labelled a cofounder, be added to the corporation as a partner, or receive class A or class B stock, or common or preferred shares, or equity, ask.
Given that you’ve not been paid, you have a lot of good reasons for asking more from her than she is currently offering. You’ve accepted a lot of risk, and since you haven’t been paid you should claim some ownership in the result.
It won’t hurt to ask, and not asking may result in you being taken advantage of.
Questions you need to ask is what you want, what’s it worth, and how’re you able to align you needs with others.
Others have already covered a lot of ground, but thought I add one angle that appears has not been covered yet.
First, the “founder” and you, for better or worse, are on the same boat if you have equity that’s vested; which appears long-term will be the case.
Beyond that, while I’d be the first to suspect that your self-eval maybe over the top, but that aside, consider the following from an investors view:
Clearly, common wisdom would say that investors prefer co-founders over solo founders, so I would advise you pitch you being a co-founder not on your interest, but in the interest of the stockholders.
Good luck!
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