
Ask HN: Solo founder and MVP. New co-founder equity split? - Blackstone4
I am a solo founder looking to bring on a co-founder. My original idea came to me over a year ago and I&#x27;ve worked on it evening and weekends. Four months ago, I left my job to work on my startup full-time.<p>I&#x27;m in my early 30&#x27;s and my background is in investments and software. After college, I was a software engineer for two years before moving into asset management in a front office role. My product is built on the domain knowledge I gain in this area. It&#x27;s B2B SaaS with target ~$15k-$100k p.a. revenue per customer. I&#x27;ve finished my MVP and am about to go full tilt into sales mode.<p>I would love to bring on someone to do sales. I&#x27;m in early stage discussions with a potential co-founder who is a friend and someone 
 I have worked with. He&#x27;s in his late 20&#x27;s and recently completed an MBA at a top school. His background is in business strategy and analytics (sales focused). He hesitates when it comes to sales because he does not see himself as a sales person. Having said that I think he could do it and his role would evolve over time away from direct sales into more of a management role.<p>I feel like he would be a good fit because we get on well, he&#x27;s smart and has decent experience. He is interested in startups and told me he wants to jump in with both feet. He doesn&#x27;t want to make a rash decision so is holding back a bit.<p>His initial thoughts are he would work one day a week + weekends (his work situation is flexible) and eventually go full-time. I would love to have him full-time. He has a one month notice period on his contract.<p>Equity vesting would start once he is full-time over a 4 year period.<p>If he starts full-time in one-month, how much equity could I give him?<p>If he continues to keep his full-time job and goes full-time with me in X months, how could I think about the equity split?
======
mchannon
He is not a cofounder, he is (potentially) employee #1.

Cofounders don't get brought on to do sales. Employees do.

Treat him like a good salesman- give all kinds of incentive payments
(commissions, bonuses) contingent on sales performance, but be very shy with
the equity. Plan on firing him as a default unless he exceeds expectations
quickly.

Equity corresponds to risk and skin in the game, and it sounds like he has
contributed (and will contribute) very little to either.

Bonuses are paying him for what he accomplishes, equity is paying him for what
you have accomplished. If he's any good, he'll make more from bonuses than
even a 50/50 equity split. If he's not any good, then equity will be far more
important to him, locking it in before performance is known.

And having just reread your comment, a salesman who doesn't want to do sales
but wants to do management? You need to interview more sales candidates. HUGE
red flag.

Have a beer with this guy and have a good time, but don't bring him on. The
world is full of salespeople who can't sell and can't do anything else either.
They get by through others' hope triumphing over experience.

Say, while you're giving away your equity for free, can I be your cofounder
too?

~~~
Blackstone4
Why would he not be a cofounder?

At the moment, I have an idea and an MVP. I have three advisers who I brought
on in a semi-formal capacity. Two are senior investment managers and one is a
serial entrepreneur having started companies in the same area. I speak to them
maybe 1-2 a month to get advice and they are listed on my website.

In reality I have zero revenue and it will take 5+ to build this company. I've
barely started.

I also read this article on YC: [https://blog.ycombinator.com/splitting-
equity-among-founders...](https://blog.ycombinator.com/splitting-equity-among-
founders/)

~~~
jdileo
In the U.S. & around the world sales pro's earn multi-six & 7-figure incomes
(Read: more than most physicians, attorneys, engineers, etc.), yet most
founders fail to recognize their import. For example, startups regularly task
a co-founder or, gulp, initial admin hire to engage a prospect list or subset
thereof. It is an enormous mistake that yields suboptimal adherence to best-
practice and crucially, a flawed data set that a founder may clumsily use to
forecast growth, churn etc.

The sales talent required to build processes, identify most promising
inbound/outbound prospect funnels, execute script/price-point analysis &
closing ratio's, etc. to bring a v1 to market is immense. Respectfully, your
friend is woefully unqualified to serve your startup well. A B2B with pricing
model you've suggested requires a 10x pro.

Where are you located? Website?

~~~
Blackstone4
I completely agree that an excellent sales person is worth their weight in
gold. Right now I don't know any. I would love to meet some.

I'm based in London but I was in the US for the last 4 years. Moved back
because of with the visa situation it was just easier.

~~~
osullivj
B2B enterprise sales is all about networks and contacts. A late 20s MBA will
have none of these. You need someone who can work their existing extensive
network as well as cold call, and get you in the door in front of real budget
holding decision makers. I've worked on rates & FX trading systems in London
for 20 years and know several guys like that who all do commission and equity
points comp deals. PM me via contact details if you want to connect.

~~~
Blackstone4
Thank you for the offer. Do you know anyone in the alternatives space? with
domain knowledge of private equity?

------
cocktailpeanuts
> He hesitates when it comes to sales because he does not see himself as a
> sales person. Having said that I think he could do it and his role would
> evolve over time away from direct sales into more of a management role.

I've made this mistake before. Just because that person is super smart,
doesn't mean he/she can pull of what you want from the person. To find out,
you MUST try working with the person for a bit.

What you need right now as you say is a sales role. Then you need to find a
sales guy. You can always bring in your friend later on when you need a
"management role".

If you really want to try working with him, one way to try this out is to NOT
bring him in as co-founder but bring him in as an employee and pay him based
on commission. That's how sales people mostly make money anyway.

Then after a while if you think he really is someone you are looking for, then
you can "downgrade" his salary and propose equity instead.

~~~
mseebach
> You can always bring in your friend later on when you need a "management
> role".

Also worth keeping in mind that general purpose managers (as opposed to
subject matter specialists taking on managerial tasks) is probably _at least_
~25 hires out. There's simply not enough to manage to sustain a full time
position before then.

------
rajacombinator
-fresh MBA -no existing network -hesitant to join -wants to moonlight

All bad signs but you seem to think he would be a good person to work with so
ultimately you have to decide. It sounds like what you need is 1 or 2 rich
angels who have the connections to get your first few contracts, or an old guy
like 50+ with actual connections and sales experience. (Pay him commissions.)
Ideally you should be able to land your old employer as customer #1. Let your
MBA friend strike while his job ticket is hot and get a stable job somewhere.
Honestly sounds like you don’t know the industry too well either btw.

~~~
Blackstone4
I know the industry fairly well but I have never done sales before. Mostly out
bound calling / research where I've been the investor.

I know potential clients or can get intros through my network. I have three
advisers who I brought on in a semi-formal capacity. Two are senior investment
managers and one is a serial entrepreneur having started companies in the same
area. I speak to them maybe 1-2 a month to get advice and they are listed on
my website.

~~~
rajacombinator
Then you’re good to go! (Although you should make them formal advisors with
incentives.) If you can’t land clients based on that network, fresh-MBA no-
network-or-experience guy is not going to help.

------
cl42
We’ve had lots of sales people come through our doors and I highly suggest you
interview several more here. A few reasons:

\+ MBA degrees prep you for corporate success, and rarely teach you how to
sell or create sales collateral

\+ Hesitation re: sales means he will never be a sales person, at least with
that attitude. Many (most?) sales people fail because they are afraid to cold
call, prospect, do the grunt work, etc. This candidate sounds just like that.

\+ Given this is your project and you are the expert, you’ll likely have to
teach him how to sell it or spend a lot of time working with him to get him up
to speed. I don’t think that’s possible on a part time schedule

Saastr is a good resource on this.

Happy to share more thoughts if you’d like.

~~~
Blackstone4
Thank you for your thoughtful response.

I agree with you on MBAs.

I think when it comes to sales, he is not very confident so he talks himself
down. I suggested a sales book for him to read and we shall see where he comes
out on that.

I feel like he is personable and gets on well with people. He's also a hard
worker. So I think it could work but I acknowledge it's a risk.

Also I don't want him just for sales. I have a lot to do between tech,
finance, legal, sales etc. If he could come in and lighten the burden that
would be great.

He doesn't have domain knowledge so I would have to get him up the curve on
the industry and the product. Good point.

~~~
notahacker
If he doesn't see himself as a salesperson because he's not very confident (as
opposed to because he thinks he can do other stuff as well) he's unlikely to
an answer to your sales problem. Even if he's competent at the business
analysis side of stuff, selling in the $15-100k range is going to take a
certain amount of persistence and judgement.

If he can do the other mostly less critical stuff then the fact he wants to
keep his current job is actually a good thing for you: pay him for his time
and expertise when you need it and offer him a salaried job with options
if/when you have revenue, funding and a proper position for him several months
down the line.

------
WingH
“He hesitates when it comes to sales because he does not see himself as a
sales person.”

isnt this a warning sign to you? at such an early stage you simply dont want
just a “strategy” person who doesnt want to get his hands dirty

~~~
Blackstone4
Fair point. I think when it comes to sales, he is not very confident so he
talks himself down. I suggested a sales book for him to read and we shall see
where he comes out on that.

I feel like he is personable and gets on well with people. He's also a hard
worker. So I think it could work but I acknowledge it's a risk.

I also think two pedigree guys from XYZ asset management firm launching a SaaS
company will find it easier to raise capital from VCs than a solo founder.

~~~
kennethologist
Which book did you recommend? Maybe others can make suggestions as well.

~~~
Blackstone4
The book is: New Sales. Simplified.: The Essential Handbook for Prospecting
and New Business Development

[https://www.amazon.com/New-Sales-Simplified-Prospecting-
Deve...](https://www.amazon.com/New-Sales-Simplified-Prospecting-
Development/dp/0814431771)

I read it in January and found it really helpful

------
igammarays
What I've learned burning through about 5 co-founding relationships over the
years is that, whatever you do, you need to have a 3-month probationary period
where both parties understand they can leave with minimal loss and no hard
feelings. Moonlighting is fine over this period (see the point about minimal
loss). If he's good and really sees value in your idea, he'll get a LOT done
over evenings and weekends, if not, he's not co-founder material, period.

A cofounder needs to be ridiculously motivated, self-aware, and hard working.
95% of people who would make good employees wouldn't make a good co-founder.

Another tip: if someone is hesitant about sales, he is not for sales. Good
sales requires genuine enthusiasm and persistence. Especially in the early
stages, where it's all about winning hearts, and less about "sales playbooks"
or established processes. I heard Dharmesh Shah (CTO at HubSpot) describe
early stage sales pipelines with two words: non existent.

------
wastedhours
I'd echo the sentiment around him being a top-level employee, not a co-
founder. I had an option agreement as a CxO for 2.25% (never vested as I left
before my cliff).

I'm not deep in the tech space, so don't know about the whats/what-ifs of it
all, but would think single digits would work?

However, he doesn't sound like a good sales fit. If you value his strategic
chops, can you cut him a much smaller percentage for strat work instead of
sales?

~~~
Blackstone4
What is your reasoning for top-level employee vs. co-founder?

~~~
wastedhours
To my mind, a co-founder is someone who directly contributes to not only
developing the solution to the problem you're facing, but choosing the problem
as well. You've already decided on the problem domain (investments), how
you're going to solve it (SaaS), and have an understanding of the potential
growth models you'd look for (bringing someone in to ramp up sales).

Of course, if you're open to someone only working one day a week on it to come
in and challenge all of that and potentially pivot into something else, then
they might be a co-founder. But from what you've described, they're a very
senior hire (and might not be right, with sales you want to hire for passion,
rather than academic smarts), rather than your co-dependent.

I was employee number 3, but I certainly wasn't a co-founder.

------
tomtimtall
It sounds like you are trying to get a sales person onboard without having to
pay him up front and you’re trying to pay a friend with equity. Either you
business is viable in which case this a a horrible idea or you business is not
viable in which case it’s a horrible idea.

Find an employee that is willing to do high cut sales with a low salary. You
don’t need a partner for that. If you don’t feel like setting up the sales
engine is up your stream find a partner who’s experienced in running sales for
a startup and suggest a partnering deal with him. The first thing he’ll do
after getting a big equity cut is find a sales person who will do medium cut
sales with a lower or nonexistent salary.

------
siegel
I've worked with plenty of startups that bring on a top-flight sales person
who is referred to as a co-founder, but typically the equity grant is much
lower than a typical co-founder (more in the 5% or so range). There are a
number of reasons for this, one of which is that the typical first salesperson
comes on board after months if not longer of product development work.

That being said, there is a reason that salespeople are traditionally paid on
a commission basis. Is there a reason you want to ignore that convention and,
instead, detach compensation from being directly tied to each sale? This seems
like an odd move, particularly when the prospective co-founder does not see
himself as a salesperson.

You can grant equity on a non-time-based vesting schedule (i.e. performance-
based vesting based on sales performance), if you are not ready to start
paying cash or want to grant equity for some other reason.

But this person is simply untested in this role and you will not know in a
couple of months whether he should have a significant equity stake in your
company. So, traditional time-based vesting (and particularly with a magnitude
of shares like that that would typically go to a co-founder) is a choice you
are likely to regret.

------
scribu
Instead of a fixed equity allocation, have you considered a dynamic allocation
system instead?

All contributions (cash, time, relations etc.) are converted into “slices”,
with a certain multiplier for risk. For example:

* if someone contributes $X cash, they get 4X slices

* if someone contributes work that normally has a $Y hourly rate, they get 2Y slices for each hour

* if someone brings in a client for which they would have normally charged a $Z commission, they get 2Z slices

You freeze the pie when you are bringing in sufficient revenue to afford
paying everyone a market salary.

% equity = slices owned / total number of slices

You can learn more about this method at
[https://slicingpie.com](https://slicingpie.com) (not affiliated, just think
it's a better way of going about this)

------
fictionfuture
Mistake.

A "co-founder" with what sounds like ZERO experience that is shy to do sales
and get his hands dirty is almost certainly going to be a failure.

These type of people are a dime a dozen and it sounds like you want to bring
him in just cuz you like his personality. BIG MISTAKE.

If you ask me, bring in another technical guy and/or pay someone to help you
with some market validation via sales (or do it yourself)

Trust me on this (you probably won't).. i've learned this the hard way. I've
been a solo founder three times in both successful (30k customers) and
unsuccessful startups.

------
ankyth27
Your ARR per annum per customer is upto $100k, trust me this is not going to
be an easy sales to make, your sales cycles will be longer and will be
challenging for even professional sales people. Given these conditions the
credentials for the gentleman doesn't look up to mark and you should see more
people, go to LinkedIn find seasoned sales people and engage them on
target/comission basis before offering something as permanent amd valuable as
equity.

------
xstartup
Sales guy here. I like being paid in cash because having ownership runs
counterintuitive to my work.

Better, I get cash compensation and other benefits but not ownership/equity.

~~~
crdoconnor
What would you view as a reasonable compensation structure for a guy like this
for his first few sales?

50% cut on the first sale? Higher?

~~~
Blackstone4
I was advised:

* 20% of first year revenue on a cold call (deeded to be generous) * 7% of first year revenue on warm lead (incoming from website) * 2.5% of year revenue on a renewal

~~~
crdoconnor
Interesting, thanks.

With or without base salary though?

~~~
Blackstone4
With a base salary. With the comp above, ~£25k (~$35k) in base salary so
fairly low with the expectation that a good sales person can earn well over 6
figures.

This is in the UK so expect the US to be higher.

------
CyberFonic
If you want to go "full tilt into sales mode" (your words) hire a professional
sales person, pay them a tiny salary and very decent commission on completed
deals.

Anybody who doesn't see themselves as a sales person is simply NOT a sales
person ! True sales professionals are proud to be professional and are
motivated to be successful selling an excellent product. I presume that you
MVP demonstrates that your product is truly excellent.

------
LoSboccacc
> who is a friend

Do not cofound with a friend, as simple as that.

If you really want to be that generous with your work, get him on on
commission and no flat until he can put in full time. Make it generous if you
wish, even up to a third if it is sustainable, but never share
ownership/voting power with family and friends.

Also, two cofounder is a good way to get stuck in decision bickering. Aim for
three or one, any even number managing product direction is not going to work.

------
Blackstone4
I feel like there is a general sentiment around my question which says "you
shouldn't bring him on as co-founder but an employee". Why is that?

Paul Graham advises founders to "get a co-founder"

[http://fortune.com/2014/02/25/y-combinators-paul-graham-
get-...](http://fortune.com/2014/02/25/y-combinators-paul-graham-get-a-co-
founder/)

~~~
JasonSage
I do not feel like you convince somebody to be a cofounder, they convince you
they must be one.

If you're talking him into it and it turns out he just doesn't have the
capacity or passion for it which you'd like him to have, you're in for a huge
disappointment.

Look at it another way—you're trying to seal a larger commitment on paper so
you're buying into risk without getting anything tangible back on that
investment compared to investing in him as employee #1. Fallout from a bad
first employee will never be as bad as fallout from a cofounder you want to
remove.

------
muzani
I wouldn't take on anyone who does it part-time, as a cofounder. Startups
require a lot of focused energy. And I've never seen any succeed from part
time founders.

If he's holding back, then don't take him as a cofounder. He doesn't believe
in the idea or the team enough. You can still give him an employee deal, e.g.
salary + up to 5% or so.

------
davismwfl
My bigger question is why do you want to bring in a co-founder? Admittingly I
didn't read every response here, but bringing in a co-founder entails lots of
specifics and has a ton of good, but also a lot of baggage (not all baggage is
bad, it is just there).

Are you trying to get external financing? Are you expecting to apply to an
accelerator? Do you just not have the cash so giving equity is easier right
now? Are you wanting to break up the load? How does employee #1 differ from
co-founder in your mind?

My 2 cents. MBA's are fine degree's (and people usually), but in a startup I
generally avoid anyone with an MBA unless they have been in industry for quite
a while (5-10 years and at multiple companies). And as an early employee or
co-founder an MBA is a red flag to me unless that person was part of the
original team.

Honestly he sounds more like employee #1, but if you are looking for a co-
founder to help offset the load you can absolutely bring him in as a co-
founder. Just remember if the company is already legally formed there are a
lot of little details you'll have to go through on the stock
issuance/vesting/taxes etc -- e.g. get an attorney & CPA to help you.

Also, if you just need sales help that is much cheaper and easier to find than
going down this path. If he isn't interested in sales you really should figure
this part out. That said, co-founders have to do jobs that they wouldn't
normally do until companies grow, so it isn't the end of the world. But in the
case of sales, it is literally the lifeblood of the company, so it is pretty
critical.

My last point. A Co-founder is essentially someone you will spend more time
with than a spouse for the next 10 years. You will literally be seeing and
talking to this person daily for hours everyday (at least in most situations).
You are essentially married to this person, and they will call you at crazy
hours and you them and you'll be under stress together and separate which
means you have to support each other. If you have any questions as to this
person get them out and into the open and make sure they do the same before
you sign any agreements. If they smack their lips when they eat and that bugs
you, get it out now cause when you are stressed and pissed and on the fourth
meal of the day for the third straight day you'll eventually blow (I know
stupid example but hopefully you get the idea). Personally, I'd rather keep a
friend and not have a co-founder than think I got both and than lose them both
in a year.

------
Blixz
"He hesitates when it comes to sales because he does not see himself as a
sales person".

"... is holding back a bit"

"he would work one day a week + weekends (his work situation is flexible) and
eventually go full-time"

HUGE red flags right there. Do not give him equity.

------
onion2k
_He is interested in startups.._

That's nice and all, but unless you're selling software to startups it's
completely irrelevant. You need a salesperson who is interested in the
verticals your business is in.

------
steve_isd
If you want a salesperson, hire a salesperson. This guy sounds like he a)
doesn’t want to do sales and b) isn’t qualified to do sales.

Forget about making your sales rep a cofounder. Just pay him for selling.

------
rcavezza
[https://blog.ycombinator.com/splitting-equity-among-
founders...](https://blog.ycombinator.com/splitting-equity-among-founders/)

