
Co-founder or employee? - solofounder
I am the sole founder of a year old software start-up that is modestly profitable. At this stage I need another technical person to help me develop the product further. I want to hire a top notch engineer, and am willing and able to pay a market salary. I recently pitched my start-up to a grad school classmate who is currently working at major tech company in the Seattle area, and he seemed very interested. This guy is one of the best engineers I know, and if he joined it would be a huge help to me, both from the point of view of sharing the technical work, and just the emotional burdens of start-up life. I have been looking for a kick-ass 2nd employee for a while, and this is the first one I have found who is interested in my start-up. The problem is that he wants to join as a co-founder instead of as an employee.<p>However, I feel that I am the one who took all the real risk in taking the start-up from scratch to where it is today. I don't want to give up half of my start-up to another person!! I am willing to pay him more than what he currently earns, plus 5-10% equity in the start-up. But I have a feeling this won't be acceptable to him.<p>If I am not able to hire my friend, I don't know when I will find another equally talented guy. So I am in a bit of a dilemma. I would like to get some advice on this from fellow hackers. If someone else has been in this situation from either side of the equation, and he can share his own experience that would be very helpful in making up my mind. Thanks.
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trevelyan
I'm a solo founder, and think 5% is way too much. Your classmate has already
decided that earning less is acceptable to him. If you're offering him more
than he currently earns, you're already paying more than market rates. And you
want to add ownership in the company?

You (and him) seem more concerned about issues of face than issues of
compensation. This is dangerous. Quantify the value of your business and the
value he brings. If you're not sure how much value he brings (emotional
support? you're kidding me!), don't give equity. Come up with a plan to
evaluate things in six months, or make a commitment that require hitting
aggressive performance targets that are linked explicitly to his work. And
make sure things vest.

One approach might be giving him the option to purchase up to a certain
percentage of the company at a set value. Then figure out the value by asking
yourself a simple question: if you had to sell the whole company, how much
would you want for it? If he really cares about ownership he can purchase
equity out of his salary over time. If he doesn't want to invest that is a
warning sign he won't be contributing to growth.

And ultimately, remember that friendship and business is hard to mix. You will
have a working relationship with him. He could easily come to resent working
for you for "so little" at the same time you may come to resent giving him
"such a good deal". People's relationships change when money is involved. At
least by focusing on the numbers you won't toss away your business for
nothing, and can be dispassionate with him when discussing what you can offer.

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RiderOfGiraffes
If he's such a great engineer, go through the sums with him. Get him to sign
an NDA, then talk about the value of the company. If he wants shares, he
should pay for them.

Rough order of magnitude - Supposing your company has a turnover of 100Kpa and
is 20% profitable. Finger in the air, the company is worth around 700K, and
10% is worth 70K cash (ignoring the details of pre-money/post-money
investment).

Is he willing to put in 70K for 10% shares, and then work for dividends?
Probably not. However, that's what you're doing (in effect) so why should he
get a better deal?

Do the sums. They are more convincing than woolly ideas. Better yet, get _him_
to do the sums. Then you can see what he thinks things are worth.

If he's so good, don't alienate him, get him on side. Work through the issue
with him. Negotiations can be win/win and don't have to be zero-sum games.

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vaksel
this post is the reason programmers shouldn't be business guys. There is no
dilemma here, the guy is offering to rape you over a barrel and you are
actually thinking about pulling down your pants and bending over. Anyone who
takes advantage like that is no friend to you.

Want some real numbers? At this point there are two choices: a) Full Salary +
1-2% equity. or b) 8-10% equity vested over 4 years and minimum wage salary.

Paying full salary AND 10% equity, when the startup is already beyond ramen
profitable stage is insane, it only makes sense if the guy is a real genius. I
mean Larry Page/Sergey Brin level, and on top of that his knowledge, is
something that you MUST have. Noone else in the world has that knowledge, and
you NEED it to get your product to the next level. Then, and only then can you
even consider that sort of deal

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RiderOfGiraffes
You are right, but you're not explaining where you're getting your numbers
from, nor are you suggesting how they can find an agreed way to proceed. Maybe
his friend really just doesn't have a clue and simply needs to be educated.

I think your rhetoric is unhelpful, even if the arrangements you suggest are
right. Try explaining why, otherwise it seems like more unjustified advice
from someone random.

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davidu
Some points to noodle on:

1) The emotional side of not wanting to call him a founder is something for
you to get over. His title won't matter to you if he helps you become a
billionaire.

2) He's part of your founding team at the very least.

3) 5-10% equity is very generous. More than I'd offer.

4) If he's the right guy, do what it takes within reason to bring him in. If
he wants to call himself a founder, let him. The real story is known by you
and that should be enough.

5) If you do bring him on board as a founder, you need to internalize it or
you'll constantly struggle every time you see his name alongside yours in
print or on the site and it will be a source of conflict.

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Travis
I understand where everybody is coming from when they say that salary + 5% is
very generous. Really, I do. However, I would caution OP to consider the
following two (which it sounds like he has, at least for item 2 below).

First, biggest reason to go over 5-10% + market salary: if you think he will
bring in that much additional money. Say you pay him $100k + 10%. Suppose your
current profit is $50k / year (you said you were mildly profitable). If he
ramps this profit from $50k to $200k, you're still ahead of the game. Yes, it
is possible: with only 1 founder, OP is stuck doing a lot of overhead work,
which would take less time of a second guy. Plus, there's: 2) The emotional
support. Fresh blood can definitely help the weariness and solitude of running
your own company. Sure, employee #2 may not bring in another $150k, but he
could help you increase what you bring in due to more enthusiasm (and, more
impt, quality of life).

If you ever want to take a vacation, you will need a second in command. Higher
percentage means more (emotional) ownership, so this guy is also less likely
to treat it as another job. He probably doesn't want to work for someone else
ever again (a common thought), so he wants more ownership.

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ramanujan
If you can edit your original post so that he wouldn't be offended if he read
it, it might be worth pointing him to this thread to see the "consensus" view
among other startup founders.

This could make it less emotional -- "you know, this is the done thing".

Alternatively you can assemble a short case with several links/references to
show that what he's asking for is a lot.

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etherael
How much stability are you asking for him to sacrifice in order for the deal?
ownership of the company should be thought of in cash terms, it can then be
traded off directly between salary and equity. Give him a generous full
package of what you honestly think he's worth, keeping in mind his current
position + stability of that position vs potential stability of the position
in the new organisation, and then let him pick out the details of how he wants
to split it between investment in the company and raw salary.

The results should be pretty illuminating into what he really thinks of your
venture.

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sfall
don't give in, ask him why he thinks he deserves co-founder status. If he is
being reasonable he will realize you have done far more than what him walking
in the door offers.

co-owners brings more issues than you may expect

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kemo
Trust me, there's no win-win situation in your case. just give him salary, if
he's really good than give him a really good salary. That's it ;)

As soon as you start giving shares away, the one who's taking them will get
greedy and ask for more. How does that end ?

You'll stop being friends ( trust me ), he'll get way much more from something
that you've built than you will,

If you want to work 'in percentages' with him anyway, than do it with new
projects and businesses.

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npost
If you do decide to work together, be sure to have a strong legal agreement
between you two. Especially, if you bring them on as a co-founder.

Key points: \- Stock vesting \- Dispute resolution \- Out clause \- the usual
boiler plate

Otherwise, if things don't work out (and if they are a friend, it can get
nasty) you want to have a clear plan that everyone has agreed to.

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pakmee6
If he is really that good, make him an offer that he cannot refuse. In the end
, if he is really gonna make a difference , do not hesitate. Why not make him
a cofounder/employee and offer him say 20% . U can also tell him to start as
an employee and he will be promoted once u start making more money and need to
grow.

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noodle
i'd pitch your best non-cofounder option first. it sounds like your offer is
an appealing one, and something that i don't think anyone would be offended at
receiving.

if they reject it and push for cofounder, sit down and figure out which one
you want more -- to retain total control or to have this person on the team.

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mbrubeck
How much do you think your company is worth? If you're considering making him
a co-founder, then estimate the value of the additional equity he's asking
for, and ask if he'd like to give up an equivalent amount in salary over his
vesting period.

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gte910h
Don't hire him yet. Hire him at the earliest employee 5. At that point he'll
understand he's just not the only chick in a sausage fest, instead he's
getting paid for his value.

Or don't hire him at all. There are a lot of quality engineers out there right
now.

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zaph0d
I think you can still make him a co-founder without giving him a 50% stake.
Give him 10% and make him a Director of your company (or whatever works).

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myared
In my opinion, don't hire your friends unless they complement perfectly. Even
then, have a backup ready in case that person wants to move on.

~~~
CyberFonic
I've had your experience, I lost both money and a friend. People tend to over-
value their contribution. If things are already working well and you're making
profit, then you need to quantify how and when this guy is actually going to
add value any offer should discount such a projection with an incentive
component to reward over-performance.

If you need emotional support, then either book a series of sessions with a
shrink or get a puppy. Long-term personal success is a function of your
emotional resilience. So wanting to get your friend involved at any cost is a
warning sign. For some people a mentor might be a good alternative.

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known
If he is a 30+ guy, let him join as Co-founder.

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solofounder
Care to explain why?

~~~
known
He will me more productive as Co-founder because his technical and business
skills would reach peak stage by 30+

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jonursenbach
What's the product?

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cgherb911
5-10% plus pay!? And you're already profitable? Sounds like a kick ass deal to
me. Give him a nice title and the deal sounds amazing and nearly too good.
Especially at 10% equity. Just make sure to have vesting on his shares over 2
to 3 years.

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LoneCoder
You should give him 100% of your company on the condition that he thinks about
giving you a job for $2 an hour plus all the fruit snacks you can eat.

That way you'll never be accused of being a capitalist oppressing the working
class!

