
Ask HN: Some noob co-founder questions - arisAlexis
I want to invite more people in my startup but I have no idea how to evaluate their time. I have 30% MVP and business proposals that I done myself. How to value how much % of the company should I give to someone who is going to spare X time&#x2F;week on this project as a co-founder? I can&#x27;t seem to find this kind of information and I want to be fair with my proposals. More importantly, how to validate this if I am not yet incorporated? Make a draft contract and e-sign it?
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tptacek
Everybody. Must. Vest. If you can't use someone else's paper for the
employment and equity contracts, talk to a lawyer. Set up standard 4-year
vesting with a cliff. If you hire someone and 3 months later come to the
realization that they aren't working out --- which is likely --- they can't be
walking away with a chunk of the company.

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akanet
I run a profitable one-man SaaS business. I think before you seriously
consider even bringing someone on, you should think about exactly what you
want. If you have 30% of an MVP and a business plan, what are you looking for
in a cofounder? Why is bringing them on material to your business?

You mentioned that people don't take you seriously as a one-man operation.
This is not my experience when it comes to negotiation of standard contracts -
businesses care about the value you create for them. Being a one-man operation
has mattered when dealing with acquisition negotiations, but I think
optimizing for that now is a bit of cart-before-horse.

Imagine you are pitching to your imaginary board or a potential investor. You
want to bring on a cofounder to help you grow X% in Y months by adding Z
strategic value. Fill in the blanks and then decide if you actually know
anyone like that. When you do all that I think the % of the company to give
away questions will become transparent.

~~~
wiradikusuma
Last time, when I met a VC associate, he was excited to hear my pitch, and in
the end he asked about my team. When I told him I did everything alone (and
doing it parttime), his facial expression changed, and started lecturing me
(in a subtle way) about how hard it is to run business alone and part-time. I
had a working product and some tractions. The idea was to get money from him,
so I can confidently quit my job and working on my product fulltime. Sounds
like catch-22 no?

~~~
Theodores
"nobody on the internet knows you are a dog" \- make your pet dog/cat/hamster
a co-founder/imaginary friend. Create a facebook page/github
account/stackoverflow account for them so they exist on a cursory Google
search. At a later stage after you have done the money grabbing explain that
your co-founder didn't really commit much code and you had to let him/her go.
Dishonest? Yes, but women that posed as men to get publishing deals or to join
the army were dishonest too. In the current scene there is this 'must have
cofounder' rule that doesn't entirely make sense. It is mythical man month to
a certain extent - if one person spends two years to develop an MVP and get
traction that is somehow worthless whereas if a team of two do it in a year
that is somehow perfect.

~~~
greenyoda
If you're making up imaginary partners to get someone to give you money when
they wouldn't otherwise, you'd be committing fraud. If the investor found out,
they could press criminal charges[1] or sue you to get their money back.
(They'd be especially likely to do this if they lost money on your company.)
Once the case ended up in court, you'd have no way out, since continuing to
assert your lie would be perjury (a felony).

[1]
[https://en.wikipedia.org/wiki/Fraud#As_a_criminal_wrong](https://en.wikipedia.org/wiki/Fraud#As_a_criminal_wrong)

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gullyleft
I think you should just find some people who are excited by what you're doing,
start working with them on a trial basis without any formality, and just see
how it works. You'll probably end up cycling through a bunch of people before
finding anybody of co-founder quality.

You'll meet a lot of people who are really excited to be involved in a
startup, and then a month later learn that they don't have it, or that there
are fundamental differences in the way you guys do things. It's super hard to
find "co-founders" which are totally a type of person.

My two first co-founders were very experienced. I picked this up from them.

Find out what they do and if you even like them, etc. After the trial period,
negotiate based on their value, quality (experience, exceptional skills) etc.
and risk they're taking (time spent) with emphasis on output (value). MAKE IT
VERY CLEAR from the outset that the work you're doing together is to see how
things go. If it doesn't work out, you go your separate ways. People who have
done this before will appreciate this method and those are the people you want
as a cofounder! You can set the trial period for 1 to 3 months.

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wpietri
Please, please, please get a lawyer before you do anything as dangerous as
"make a draft contract and e-sign it". Amateurs making up business legal
documents is one of the dumbest false economies ever. Use a lawyer experienced
in starting businesses.

Before that point, either pay the people (small amounts of) cash or treat it
as something that they're doing for fun, with the understanding that you'll
take care of them if it turns into anything.

At this point, there is not enough data to put a value on anything. If you
want to be sure you are fairly rewarding people later, then have everybody
track hours, and value their initial labor contribution at some reasonable
per-hour rate.

If you want to bring somebody on as co-founder, remember that a business
partnership is almost as serious a relationship as marriage. You could be
spending years with this person at 60 hours/week. Ending a business
partnership is often as painful and more complicated that divorce.

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wusatiuk
Are you looking for a technical co-founder or a co-founder in the marketing /
business fields?

I think if the idea is a good one, and you don´t have a co-founder yet, try to
get some cash and hire one or more freelancer instead of giving away 50% of
your company for some days / weeks of work. It depends on your strategiy, the
idea, the potential, cashflow planning,...

I would suggest that you do a business model / business plan, at least a small
one, first, so that you have something to show to potential investors / co-
founders.

~~~
arisAlexis
I am more interested in a technical co-founder but I also will need marketing
in the future. The thing is that since I am a full stack dev, I can do
everything bottom up so I don't really need to pay a freelancer for a few
weeks, I just need someone to work with me because doing it alone is so damn
difficult. Also people don't take you seriously when it's a one man show (and
it's correct).

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moubarak
Here is the equity equation by Paul Graham
[http://paulgraham.com/equity.html](http://paulgraham.com/equity.html)

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arisAlexis
I appreciate all the comments, but how do I test people for a limited period
when they will have all access to my git in order to commit things? It's so
easy to get all the code/fork when I let them go with my original idea on
their plate right?

~~~
vitalyny
Make them sign NDA.

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vitalyny
You can also have a look at this calculator:
[http://foundersolutions.com/founder_equity_solution](http://foundersolutions.com/founder_equity_solution)

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vitovito
There are some assumptions in here we have to take apart.

First, if you're not a corporation, there isn't "really" equity. LLCs have
ownership, but it's not stock like it is in a C corp, it's just whatever you
define it to be. If you're an LLC which will eventually reorganize into C
corp, or just a bunch of people puttering around together in your spare time,
there's no legal structure or contract which could _guarantee_ that the final
incorporated form of your startup will preserve the equity arrangements you've
discussed.

It is entirely possible, perhaps even likely, that someone will get screwed,
when incorporation time comes. As such, I don't really see a point in formally
defining equity for a non-C corp. Either everyone trusts each other or they
don't, but paperwork isn't going to fix that.

Someone will sputter, "but you could just put it in a contract!" Yes, but if
you can't afford to sue me over the terms of the contract when I form a new C
corp without you, then what's the point? (I assume that's why you're not
incorporated yet, that you don't want to spend a few thousand dollars for
paperwork, and that your co-founders probably won't, either.)

The other problem you have by not incorporating is there's no independent
entity which owns all the IP. When your co-founders write code, who owns it?
Where is that defined? How is ownership transferred from them to the startup?
If this is their side project, do their employment contracts allow them to
have side projects, or do their employers own everything they do? Are they
using their work computers to work on anything for your startup? Etc.

So, in a sense, it doesn't matter what percentage you say they have, nor how
you validate it, because those arrangements aren't worth the paper they're
printed on.

That said, my fourth startup attempt went the unincorporated route. We had a
gentleman's agreement around IP and ownership. We used Joel Spolsky's equity
plans, most recently discussed here:
[https://news.ycombinator.com/item?id=7610781](https://news.ycombinator.com/item?id=7610781)

All the original founders were the first tier, sharing 50% ownership. We were
all equally side-project-ing it; there were no full-time founders. Additional
rounds of founders would have been in one of the subsequent 10% tiers. If we
had any full-time founders, I'm not sure what we would have done; perhaps
full-timers in one 30% tier, and part-timers in a shared 20% tier, to keep the
50% bracket for original founders.

For IP, we agreed to each retain ownership of our own code, and non-
exclusively license it to each other person, for the purposes of working on a
group project. We had a shared private code repository; anything in there was
understood to be licensed as such, and only the things in there.

Everyone understood that all of this was effectively non-binding, but we all
trusted each other, and the expectation was, come time to launch the app we
were working on, we'd incorporate at that point, and formally define all of
this.

~~~
tptacek
I started an LLC, ran it with two co-founders and several equityholders for ~9
years, and then sold it, and what you're saying about LLC equity allocation
_does not_ square with my experience.

There are several lawyers on HN who might be able to shed some light here.

I think the advice that (paraphrasing) "equity doesn't matter if you're an
LLC, everyone either trusts each other or they don't" is probably dangerous.
Among other things, all equity issued must vest.

~~~
vitovito
Interesting. I'd be interested in knowing exactly how that equity structure
was set up for an LLC.

My lawyer was very convincing that, specifically with regards to
reincorporating as a C corp later to take on investment, that there was no
assurance that the LLC's equity structure could be guaranteed to survive that
transition, and it wasn't worth our time or money to try.

We had no vesting in that instance, we were all immediate equal co-founders.

~~~
tptacek
The all-equal-cofounders scenario is the one where vesting matters the most.

