startup-costs, sharesMe and my business partner are starting a new project and to avoid further complications/conflicts, we are trying to put on paper as much as possible “legal” stuff.
We are at the part where we need to divide shares.
My partner will deal mostly with software engineering, while I will mostly be working on management side. As for the schedule, I am in position to invest approximately 15 hours per week while he can easily invest 30 hours.
The plan is basically to go with that schedule for approx 3 months and see where it goes. If we get some investment, I will be in position to work as many hours as he does.
We tried to find simmilar case on this site but did not find any.
Should we simply go with 1/3 - 2/3 shares or is there some other factors that we shall take in consideration ?
I find questions like this unusual as I have never considered anything other than an equal split among the founders of the business. It may be controversial but it doesn’t really matter to me who ‘brings more’. In many cases the business could not run if all of the founders were not involved so without them you would have 0. Therefore each founder is equally important.
If the other person is not a founder then the sole founder initially starts with 100% and should make an offer to the other person as a first employee as an incentive to working for them.
Discussing who is more important is distraction to most startups that can kill a business very early due to bad blood. When what you really need to be doing is getting everyone on the same page, taking action and making money. loads of businesses get stalled early on fighting over equity split (on a company worth 0), the logo and their company name
This is a bit complicated. Going with 1/3 - 2/3 shares because your partner invested double the hours you did, is not a good idea. Let me explain. The number of hours someone worked, does not necessary reflect, the amount of work he has completed. A junior developer will work for 5 hours to do the same task that a senior can do in 1 hour.
My opinion about your problem, is to check, who, is giving your company more value. The developer will for sure, for now, give more value to the startup when compared to you, because management in a startup, prior to launch is not very very much.
I would suggest, an 80 - 20 split, or 75 - 25.
Although 1/3 to 2/3 reflects the division of labor at this time, you’re not going to be happy with that split if you get investment and the company becomes a real thing.
The Developer (in this case CTO), needs to be equal to the CEO (you), in order to be incentivized. And, as you point out, the developer is doing most of the heavy lifting and creating the first value for the company.
But raising money is hard (if not impossible, right now, for a pre-revenue company,) and if you accomplish that, it will have been a major feat, delivering the even more critical, second value for the company.
Assuming the project requires funding, there is no company unless you can find money.
Possibly you grant the Developer 50% for now, and grant yourself 25%, with another 25% in reserve, pending you bringing funding. (If you cannot find funding, possibly the developer gets the remaining 25%, or you two split the remainder. Note that, in this case, the developer controls the company.)
IMPORTANT
YOU WANT TO AVOID A 50/50 SPLIT AT ALL COSTS because this can lead to deadlocks. Deadlocks that cannot be resolved generally require the dissolution of the company.
Ideally, you’d reserve a small portion of the equity for a neutral, 3rd person who can act as a tie-breaker. (I mention this with full awareness that finding a truly neutral tie-breaker, at this stage of the company’s development, is problematic.)
However, if you do bring funding, the investors will get equity and could serve as the tie-breaker. This could be either a good or bad thing, depending on their outlook, but at least they are an ostensibly neutral, but interested, party.
Something I found useful for this is the Startup Equity Calculator. Not perfect but at least it is a starting point.
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