

Ask HN: Another Equity Question - johnwood

Hi HN, I would greatly appreciate your advice regarding my situation.<p>Sometime back, I was offered 7.5% starting equity going up to 10% (beta go-live) by a start-up.  The start-up consisted of one Business and one Technical guy who were working on the idea part-time for a few months before they contacted me.  An equity only offer was made to me and it involved no salary.  The plan was for the three of us to continue to keep our day jobs and continue building the site part-time.  Before the offer, I was shown mockups of the proposed site and informed that the back-end was already done, and that I was to build the front-end for the site.  I accepted the offer based on two considerations: a) Based on my estimation of the effort to realize the mockups shown, b) Based on the back-end of the site already being done (I was expected to do a simple presentation layer that needed to be added on top of it to access the functionality).<p>However, over the next 5 months, the mockups that I was shown were changed substantially and the effort that I had initially estimated increased by a factor of 3 (or more).  Additionally, almost all of the back-end of the system which was supposedly done, now completely needed to be reworked.<p>At the time of the offer I had inquired as to what the equity break-up was and had not received a clear answer.  But, the project sounded exciting, the two guys looked strong in terms of the value they added to the company, the back-end of the system seemed to have already been built and the 7.5% to 10% equity sounded reasonable for the effort.  However, with how things progressed over the next 5 months, I started questioning if the equity break-up was really fair.<p>I let them know my concerns and also tried determining what the current equity break-up of the company was (how much between the two guys, how much set aside for investors, option pool etc).  The reason behind this question was for me to determine if I really wanted to continue in a setup where I was doing as much work as anyone else, came in at the same stage in the company as the other two guys, faced the same risks and still only got 10% while they shared 45% and 45% between them.<p>However, I was told that the equity break-up was confidential and was only something that was discussed between the "founders" and the "board of directors" and it was inappropriate for an "employee" to know.<p>So, I quit.  I want to learn from this experience.  Did I do the right thing?
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clarkevans
Quitting was probably reasonable -- especially if you're truly responsible for
a large chunk of the code & you weren't included as a founder.

If you still have equity, you're not done yet. Depending upon the operating
agreement, you could get a K1 in the mail with tax liability. The operating
agreement should limit self-pay and should have the company keep in escrow
expected pass-through taxes of the members.

Next time, you should have had a "reasonable" salary in addition to equity,
logged as deferred compensation payable through a percentage of revenue. This
way, if they make money, you get paid regardless of equity.

Next time, if deferred compensation and/or final equity isn't set, you should
keep the intellectual property rights till there's some way to evaluate
relative contributions.

Hope this helps.

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veyron
The simple answer is that they think of you as an employee. And you aren't
being paid. If you dont feel your cut is fair (and based on what you are
saying it looks like thats the case), you should quit and feel no qualms about
it.

Treat it like an employment situation. If your job was bad, there's no reason
to continue working there.

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petervandijck
Yes I think you did the right thing.

