

Ask HN: How to split the startup? - franciscop

We&#x27;re three founders:<p>- Sales<p>- Hardware<p>- Software (me)<p>The hardware and software are &quot;finished&quot; (software is never finished) and they work even better than expected, but there will be new features and improvements in the future. As we just finished it this week, there&#x27;s no sales yet and we&#x27;ll be creating the company soon.<p>So there&#x27;s a problem: from the work done so far, the hardware guy and me should have most of the cake and the sales person should have the smallest (he is also on commission per sale). However the sales guy wants a bigger piece of the cake since his work will be larger in the future.<p><i></i>How should we proceed to split the business? What steps will help us decide?<i></i> Have in mind that we&#x27;re two inexperienced (at negotiating) engineers against an experienced salesman, so we&#x27;re on the odds here. I think it&#x27;d be fair for us all to have a similar share as he&#x27;s on commission. He thinks it&#x27;s unfair when looking ahead and when our work is mostly punctual.<p>I would love to hear your opinion since there&#x27;s many experienced people here, probably on both sides.
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thisguychicity
I always recommend that entrepreneurs form a company before they build a
product. Everyone needs some equity up front for the work done to date. This
equity is given in exchange for the company to take ownership of all the
technology built today. The rest needs to be allocated to everyone (even you)
on a vesting schedule. The end goal being that after the vest period the
equity is evenly distributed. Vesting schedules have cliffs that distribute
shares. Typically I recommend a 5 year vesting schedule with 12 month cliffs.
If someone works for 11 months and vanishes you don't owe them any of the
unvested equity in the business. If they leave after 1 year and three months
they only vested the first year of equity on the schedule.

The issue at hand is that none of these roles is ever really done. It's very
likely that someone will up and vanish for one reason or another while the
company is being built and the remaining founders will have to bring someone
else in and offer them equity to pickup where the previous person left off.
Ensure you have take with and come with provisions for the protection of all
shareholders.

Details: I would form the company as a corporation in Delaware with more
shares allocated than distributed. Base your vesting schedule off of the
shares allocated and not the possible number of shares distributed. This gives
you the ability to sell shares to investors without having to pay a lawyer
again in the future.

Source: Done this a few times and sold two companies in the last six years.

Me - [http://www.strapr.com](http://www.strapr.com) \- happy to provide more
advice if you want some, my email is on there.

Disclaimer: I am not an attorney and this is not to be construed as legal
advice, you should seek counsel for your needs.

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gus_massa
33% for each one + 1% for me :)

More seriously, as you said, software and hardware are _never_ finished, so an
equal split is better. Once you get users you will find thousands of small
details that _must_ be improved. You will need a version 2. If a provider
close, you will have to redesign the hardware with the new components. If
Apple decide to change the AppStore guidelines you will have to adapt the
soft, ...

I'd recommend the “Joel's Totally Fair Method to Divide Up The Ownership of
Any Startup”: now located in [http://www.brightjourney.com/q/forming-new-
software-startup-...](http://www.brightjourney.com/q/forming-new-software-
startup-allocate-ownership-fairly) (Note: I don't like the IUO very much.)

Previous discussions, with many interesting comments:

[https://news.ycombinator.com/item?id=2445447](https://news.ycombinator.com/item?id=2445447)
(441 points, 1381 days ago, 67 comments)

[https://news.ycombinator.com/item?id=3489719](https://news.ycombinator.com/item?id=3489719)
(335 points, 1100 days ago, 93 comments)

Another similar discussion:
[https://news.ycombinator.com/item?id=8420792](https://news.ycombinator.com/item?id=8420792)
(4 points, 109 days, 6 comments)

And 147 more similar discussions, some of them may have good ideas:
[https://hn.algolia.com/?query=equity%20split&sort=byPopulari...](https://hn.algolia.com/?query=equity%20split&sort=byPopularity&prefix&page=0&dateRange=all&type=story)

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phantom_oracle
Here is the real piece of advice:

Get a qualified opinion from someone experienced in equity splits (VC, lawyer,
etc.) who has no vested interest.

Now for my drivel:

Don't split the startup at all right now. The golden rule (IMO) is to use
stock options (or basically, create vested interests).

The truth is, you could end up the so-called "dick" that leaves the company
pre-maturely, so be equitable in all your tradings and make everyone vested
(with some clauses of job review, etc - which is why you need a qualified
opinion on this) so that the startup has some structural longevity.

PS. If you think sales is hard, watch that TV show about the guy in the 80s
cloning an IBM and then trying to peddle laptops. Sales is a tough (and
sometimes dirty) game and you should probably appreciate your Sales guy more
(especially if he is a hustler).

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czbond
As an engineer, and CTO - I can tell you the hardest job is sales. Product is
never finished - but neither is sales. If you are both introverted engineers,
the company has a high chance of going nowhere unless there is an extroverted
'business guy'.

~~~
franciscop
I completely agree from what I've learned in the past. While we're not
introverted, we're also inexperienced in sales so the main part will rely on
the business guy.

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brudgers
Are you suggesting that hardware and software should be worth more of zero
than sales?

Good luck.

