
Ask HN: New founder in need of advice - newstartupguy
Hey guys, launching a startup and need some advice. I&#x27;m the technical co-founder&#x2F;CTO, he is the business development guy.<p>My cofounder seems to think VC are more concerned with appearance than performance... He thinks the most important thing in a VC&#x27;s mind is that we have an office with a full team in it every day. I disagree.<p>He thinks that having our team all in the same city&#x2F;state is necessary to be taken seriously by investors. I disagree.<p>I&#x27;m constantly getting yelled at any time there is a bug... In his mind if a VC sees a bug, we&#x27;re finished. My opinion is that as long as we&#x27;re forthcoming and open and honest about mistakes and communicate with our clients and investors, we&#x27;ll be fine (to an extent).<p>He wants a 90&#x2F;10 split because its his idea and he&#x27;s put about $80k into the business so far... I think 65&#x2F;35 is more fair because I&#x27;ve built the software from scratch, have put in about 500 hours so far (no pay), and will continue to work around the clock for free until we&#x27;re profitable.  10% is pretty unfair right? In his defense, he has crazy connections in the VC industry, has sold a (domain) company before, and has pretty deep pockets. That&#x27;s the only reason I&#x27;m comfortable with going less than 50&#x2F;50. I&#x27;m a sr engineer making $150k&#x2F;yr now and I&#x27;ve worked for several software startups. Also I&#x27;m functioning currently far beyond my CTO capacity -- managing contractors, handling finances, and more.<p>I also don&#x27;t think we should raise money... He&#x27;s got tons of money and we&#x27;re already making money.  Our burn rate right now is about $10k&#x2F;month and most of that is going to our designer. At the rate we&#x27;re at, we should be break even in then next 3 months. I don&#x27;t see a need to pull in a few million dollars and give up 1&#x2F;3 of the business.
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mchannon
With regard to the first half, your cofounder requiring an "office zoo", where
visiting VC's can show up unannounced and whistle past, gawk, and throw
peanuts at poor creatures who are not in their natural environment, I
sympathize.

But you're going to have to pick a side here. Either your cofounder knows what
he's doing when it comes to investor relations (and showing off downtrodden
employees shackled to their desks can count as that) and you need to trust
him, or he doesn't and you shouldn't keep treating him like he does.

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richkuo
This post sounds like an attempt to settle an argument - some of the issues
you mentioned should be settled as a team. A poorly settled "You're wrong and
I'm right" argument might lead to bigger and more serious disagreements down
the road.

If it were me... stop what you're doing and sign some papers. Friendships tend
to break when dealing with the potential for making a lot of money. Is your
relationship worth a million dollars? Maybe. What about a $100 million
dollars? You're friendship isn't going to hold up if what you are forecasting
is true. (I'm sure Zuck has 'lost' a lot of friends)

Without much other information on your company, here are some considerations:

If you don't get your % split, would you still be as motivated? work as hard?
be as involved? What about your partner? How will it affect your business?

Your partner has crazy connections - how has that helped your business? How
will it help your business in the future? How come you haven't raised money
yet? If you don't raise money, how else does a VC play in your business?

He's put in $80k, why don't you just give him $80k for 100% of the company?

What if you just up and left, would the company be able to continue without
you? (aka are you reasonably replaceable?) What if you just took the code and
left?

How will all of this play out with the rest of the team?

Just some food for thought. Good luck!

PS. Unless your designer is doing front-end dev, I feel like you are
overpaying your designer.

~~~
newstartupguy
Thanks for the input! She's full time (though more like double full time)
front-end engineer and designer. Designing both the web app and ios and
android apps. Definitely worth it :)

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cheeyoonlee
Have you guys incorporated yet? I'm assuming you have but in any case, the
sooner you guys settle the shares/vesting the better. How much of an asset do
you consider yourself to be in the company? If you were to leave next week,
would the company suffer a huge loss? If so, you have the edge and I do
believe you deserve more than a 10% stake, even for the work you've done thus
far.

EDIT: I also agree that you don't always need to raise money. If you guys have
the means to continually fund yourselves (as you mention break-even in 3
months), it's really not necessary especially once you hit a substantial
profit margin.

~~~
newstartupguy
Yeah, we're an LLC at this point. He incorporated before I joined.

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gus_massa
Just for reference, YC invest ~$20K for ~%7 equity. So 30+35/35 doesn't seems
to be so bad

[http://ycombinator.com/apply.HTML](http://ycombinator.com/apply.HTML)

 _> 3\. We decide who to fund after each day of interviews. Yes decisions will
include the amount we'll invest and the percent of the company we'd want for
it. We usually invest $11,000 + $3000n, where n is the number of participating
founders, up to 3 (i.e. 2 founders get $17,000, 3 or more get $20,000), in
return for between 2% and 10% of the company. The average is 7%._

Another thing. You got no pay yet. Did he get payed during this time?

~~~
newstartupguy
Neither of us have received any pay at this point.

Also, YC invests at that rate for companies without even an idea. We have a
product launched in beta making several hundred dollars a day (inflates on
weekends), with about 82 signed up clients most of which are going to start
becoming more active (spending more money) as soon as we launch our iPhone
app. We should be fully launching in the next month, at which point we expect
to start raking in way more money.

~~~
cheeyoonlee
At that rate, you shouldn't even bother with an incubator or accelerator. If
profit is looking good, no need to raise funds unless you guys are looking to
expand your team.

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robin_reala
Hang on, you’ve done 500 hours unpaid work and haven’t signed a contract
stipulating a profit split?

~~~
newstartupguy
No, we're good friends... We've been more focused on just getting going.
Admittedly stupid on my part, but if anything does go sour, I own all the code
and all tech stuff is in my name.

~~~
dylanhassinger
you are naive to keep working without your arrangement written in stone.

You're good friends - for now. That can change in an instant.

Code "ownership" doesn't matter if he can afford better lawyers than you.

~~~
newstartupguy
I agree with you and will be rectifying it soon.

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mztwo
Founder here, on the business side but I've seen and heard plenty of stories
about companies where things don't go as planned. Please share even a
throwaway email with us - happy to share insights and legal info with you.

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newstartupguy
I'm admittedly a bit lost as this is my first time in the position I'm in so
any input would be great. Also if anyone is looking for a mentee, I could
really use someone to talk to about stuff on a weekly basis.

~~~
mchannon
Since you're green we can't see an e-mail address. May want to share a contact
method with us directly.

If you're not compensated in writing in the LLC agreement (which you would've
signed), and you haven't been compensated otherwise or signed away your
rights, then you own the code you've written and can act accordingly when it
comes to negotiations. That may not get you very far, but it does give you
some leverage.

