

Ask HN: Giving Equity to Early Employees/Late Cofounders - jalammar

A couple of years ago, I began developing a web application with the intent of it becoming a startup when it's ready. It was launched about a year ago. I worked alone on the whole thing, and used the help of a freelancer in some aspects. 4 months ago, I saw that it was time to start getting serious about it. I gathered a team of 6 people to help work on the site (2 developers, 3 to help with moderation and content, and one to undertake publicity). What I proposed to them (since it's a bootstrapped startup with no real funding) is that whoever logs 100 hours of work in the next 6 months will earn a share in the company worth the ratio of their hours of effort to the effort hours of the rest of the team. (I have already logged about 1300 hours working on it, so if they log 100 hours each, the pot will be 1900 hours, so each of them would get about %5, leaving about 70% for me, the founder).<p>(a possible alternative is to substitute "hours" with "work units" so that things like development would have more value than things like forum moderation...etc)<p>I came up with this kind of deal because I wanted 1) the dedication of of a team that feels ownership in the venture 2) each of them to prove their dedication to the new company (by passing the the proposed threshold of effort).<p>Is this fair way to do things? is it wise? So far it's only a verbal agreement on a vague idea along these lines, but I want to resolve this issue and finalize it now.
======
tptacek
In a VC-backed company, 5% is a huge number. Much larger than it sounds like.
A CEO might have 5%.

In a situation like this, where you're talking about part-time dev and forum
moderation, it's unlikely that anyone on your team is going to value equity as
much as you do. Which means that any reasonable allocation you create is a
lose-lose.

More importantly, if you're successful, the allocations you make today will be
a headache in the future. For example, it effectively locks you into whatever
corporate structure you have today. You can't grant LLC equity to employees.
Also, to safely grant equity, you need a vesting plan.

Equity isn't worth anything until you start making money. So maybe you should
look into something more along the lines of profit sharing.

------
aditya
Ultimately, do what your team is most comfortable with. And how valuable they
are to your startup's success.

Read the equity equation: <http://www.paulgraham.com/equity.html>

What about a vesting schedule after they get equity? That's a good way to
figure out who is in it for the longer run, too.

Best of luck!

