equity, co-founderI am a Python Developer and I’ve been working in a startup concurrently with my studies (Electric/Computer Engineering) for three months now. Three months ago, three people contacted me to join a startup as a co-founder, and join the core delevopment team (3 developers one of whom is also ‘Head’ of IT). All of us joined simultaneously, and were promised co-founder status. We did not speak of percentages right away, but we agreed on having this discussion later in time, according to the work invested by each of the members.
Yesterday there was an announcement by two of the first three members, concerning equity. The announcement was the following:
format: { Role, Percentage }
Note that no-one is getting paid (at least until now, this is supposed to change when money floats in).
Note also that 2 and 4 are currently employed in other companies, 1 is on a master’s degree program, 3, 5, 6 are still engineering students. Finally, note that it was vague that the purpose of the two first guys was to give away 20% only. We were supposed to be cofounders of the team.
In past 3 months the development team wrote all the prototype in super cool code, and is now developing the front-end.
The question is the following: is the aforementioned deal a good one? What should a developer do? Given that the 1 and 2 have full (and free) access to mentors, consultants etc, how do you judge the deal and the people?
The question is the following: is the aforementioned deal a good one?
The answer is in your question: “We were supposed to be cofounders of the team.”
What should a developer do?
Run away if the idea guy and his buddies are stubborn.
As in, fast. Cut the loss, and move forward.
Look… As great as an idea can be, it’s utterly worthless without execution.
The latter usually is a combination of a) IT execution and b) sales execution.
If the two main founders do not have the customers, execution is 100% IT so far. Get yourselves paid accordingly, because:
If they’re unable to sell on a vision instead of on a prototype then they’re not very useful to have around. (Don’t be afraid: you’ll ultimately sell it better than they do if you steal the idea and move forward with the prototype you’ve implemented.)
If they haven’t found clients yet, chances are you’re creating a product without having actually chatted with clients. If so, it usually translates to a miserable failure down the road.
If they DO have customers, it’s still an unfair deal, but there’s a lot less you can do about it. They have the money, and your only salient negotiation point is knowing the app better than the next guy. Learn the lesson, and have equity plans laid out in advance in the future.
Also of interest (for “Joel’s Totally Fair Method to Divide Up The Ownership of Any Startup”):
https://startups.stackexchange.com/questions/1885/how-much-equity-should-a-partner-with-a-short-term-commitment-be-entitled-to/1886#1886
Have a chat with a lawyer. The result depends heavily on where you are located, but at this point you should definitely give it a try.
Also consider that:
This might mean that you don’t owe them anything. Including the code you have produced so far.
Again, with the advice of a lawyer, you programmers might be able to just join up and re-sell the application elsewhere, completely ignoring the “original guys”.
In this case this would be entirely ethical, since the original guys are just trying to scam you anyway. I’d stress again that you have to check with a lawyer to know if this is also legal (but I guess it is).
1.5% and no salary is a bad deal. To give you some perspective, an advisor who just spends about 1 hour a month coaching the company would receive 0.25% - 0.75% (vesting over 2 years). You could be advising them about their code instead of writing it, and the compensation would be close!
A great test is to agree on some equity percentage plus a small monthly invoice for your time.
The point of the invoice is not income, but to test the founders’ intentions. If they screw you around on some small monthly invoice, it is 100% guaranteed they plan to screw you on the equity.
Make it clear they have a time limit on paying any invoice in full. If they do not pay on time and in full take immediate action (walk, dont run).
If they push any unilateral contract at you that signs away your legal rights, this also indicates they plan to screw you. The contract is their game plan. Read it over with a lawyer. If they wont change it, walk away.
Don’t forget to warn all your peers about them too, and maybe even a review on Glassdoor.
80% of your company is basically hot air.
thinks ideas are everything. ideas are at best cool, without implementation (see 5 and 6 below) they are actually worthless. occupied with masters programs. hence, will rarely do any work. might fart up another idea. will be offered a job based on his new credentials. and will take it. or will do a phd and make a career of farting up ideas.
already employed. ask him or her to quit. wont work much but will probably produce a shitty 5 page ‘competitive analysis’ … outlining why this company will be worth $1B in three years. (perhaps in an effort to keep you guys working)
your pr/salesperson? at 2% wont have any reason to sell anything. doesnt have much to sell yet so will not be around much.
the most important implementation person is already employed! yeah, he’ll end up pushing it off onto 5 and 6.
5 and 6. and then comes you two rascals. you two will do all of the work on speculation – for a combined 3%. it will be a race to see which one of you will leave at this crap rate – leaving the other to do ALL the work. oh but you get his 1.5%. damn dude, i see where youre going with this. and then there’s that super cool code. omg, is it super cool node?
I’m on the same boat, but my background is bit different, so I’ll share with you.
I have 10+ years background in software engineering, mathematics and many other areas. I have a good-paid full-time job as an engineer.
Business
Someone wants to start a data analytic company, focusing on data-mining and machine-learning. Basically, the founder wants to research a recommender engine, similar as how Amazon recommends you a book based on your past history. Building a recommender engine is highly analytical, I’m sure Amazon has a team of Phds working for it.
So far the business:
I’m offered 15% equality as a technical co-founder. I wouldn’t have to spend any money on it, just my time and knowledge.
While I’m very interested building a recommender engine, I think I deserve more than the 15% equity because:
I believe my skills and time is worth much than the entire company. However, I really want to make a recommender engine (personal interest). This is how it works, I’m not going to sign the offending 15% equity contract, but I’ll still work on the project but only for making the recommender engine. I’ll do it for free, but I won’t do anything that I personally don’t like to do. He can’t force me to do anything that I don’t want to do. I’ll work whenever I want to, for whatever I’d like to do. If I’m busy at something else, I’ll do nothing.
I’ll consider to sign an equity contract once there is something implemented, like a potential customer base, external funding, algorithm developed etc.
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