
How Much Equity a Technical Cofounder Should Get - nathanh
http://blog.nahurst.com/how-much-equity-a-technical-cofounder-should
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lionhearted
No, no, no, no. This is exactly the kind of thing a business guy would use to
make what should be an exercise in research and negotiation into seeming like
it's "scientific". Bullshit. Research and negotiate for what you're worth.
This is the biggest mistake I see technical people make with businesspeople -
ask for more, don't be meek and buy the business-guy "this is how it is" BS
with unnecessary totally subjective fancy charts. And I say this all as a
business guy, by the way.

Edit: Here's how I'd reply: "That's a great chart, it makes total sense to me,
I can see how you'd come up with the 20% number... just from the research I've
done on how much exits are usually worth, I'd be looking for something around
30% to come onboard, and I'd expect to work my ass off to be worth that. I'm
making pretty good salary right now, but I am really excited about this
project - how can we make this work? What would you expect out of me for me to
be worth 30% vesting over XYZ timeline?"

In other words, don't argue, indicate you've done some research, don't trip
the other guy's ego defense mechanism, state what you want simply without
grandstanding, focus on delivering value, and then ask what you'd have to do
to be worth that. It'll work. Really, unless they were offering something
overly fair to begin with to be cool, a businessperson will respect you more
if you negotiate with them a bit. Makes you seem like you've got a spine.

~~~
nathanh
"This is exactly the kind of thing a business guy would use..."

Thanks for your comment. I didn't mean for this to come across that way. I
wrote this is because I keep seeing technical cofounders getting the
shortchanged on equity, and I want them to know should get more. And I want
non-technical cofounders to know that they should expect to give the technical
cofounder a larger % equity than they often expect (unless they've really got
a lot to offer).

Here's a scenario I see a lot: a non-technical cofounder has just received
their MBA, they have no startup or industry experience, they have no
prototype, they want a "code monkey" like YuriNiyazov says in another comment
to build their product for them, they offer them 5% equity with no salary. For
some reason, I keep seeing developers take them up on their offer! Under this
scenario, I'm saying a developer should get 50% of the company because the
non-technical founder is probably ok (maybe not great) and hasn't contributed
a lot to the business yet.

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donw
I'd argue that the prototype is worthless, unless it's validated by an active
user set and/or profitability, and has been through at least one iteration
where features were added or changed.

I've seen a good number of technical prototypes built by non-technical people,
nominally via outsourcing, and in every case the only path forward was a full
rewrite. Crazy interdependency and tight coupling make it easy to build a
'demo' version of a codebase, but they also make it very expensive to bolt on
new features.

Similarly, I think the percentages are high, and don't account for any
business skills that the technical founder brings to the table -- what about a
tech guy who's gone through the VC dance, and built successful products in the
past?

~~~
nathanh
I see what you're saying about the value of the prototype. How would you
account for whatever risk the non-technical cofounder took on to build it?
Risk has to coordinate with value added though, so if a prototype didn't
really generate any new value, it's worthless. Perhaps there is some value in
"lessons learned" from messing up the initial prototype, but maybe future
investors/partners shouldn't be penalized for them.

You're right about not accounting for business skills the technical cofounder
brings to the table. I need to state that somewhere. Great point.

~~~
donw
Wow, you're on the ball. :)

We have a very convenient way of expressing value here. If the prototype has
proven solid enough to support an active and growing user population, then it
has value, because it's cleared the first hurdle of software design -- making
something people want and can use.

A few iterations on said prototype before bringing in a technical cofounder is
also a big plus-point. Those iterations are where you find out whether or not
your prototype will be flexible enough to turn into a real product.

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YuriNiyazov
This is exactly the reason why NYC is an awful place for technical founders,
and part of the reason why I left. Zed Shaw has blogged about this incessantly
- even when someone tries to recruit you as a technical cofounder, the usual
treatment you get is "Look, you like making technical decisions? Great! All
the technical decisions will be yours. You will be my pet technical-decision-
making code monkey, here's 10%". Yuck.

~~~
starkfist
The situation with an MBA trying to get a tech guy for 10% (usually much less,
actually) happens just as much in the Bay Area. In fact the culture of the
first dot com boom was almost entirely comprised of startups structured like
this.

There are more opportunities for nerd/nerd startups in the Bay Area, though.

Also, this article is a good example of a dude you want to avoid working with.

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c1sc0
What if the technical cofound has contributed significantly to the business
idea & is doing more than his share of product development? This chart seems
to be unfairly biased towards the non-technical cofounder because it assumes a
clear dichotomy between technical & non-technical skills.

~~~
nathanh
You're absolutely right. The chart is biased toward the non-technical
cofounder. I'm assuming they've done significant work on the business before
recruiting a technical cofounder. I say it in the assumptions section, but I
should probably make it more prominent.

~~~
YuriNiyazov
The point is that the "assumption that they've done significant work on the
business" is simply not valid. Before you have a product, all the "significant
work done on the business" (usually listed as 'doing market research,
incorporating, and having an email from an investor that says 'I am interested
in talking more when you have a product' which is investor-speak for 'please
go away') is just as much of a risk and a liability as software that will
inevitably be rewritten.

When you launch and all those business assumptions change later on and you
need to pivot, rendering null all the business work you did previously, it's
not like you would go back to your technical cofounder and say "I was wrong
about that market, all the work I previously did is now worthless except for
the 'lessons learned' part, so here's the extra 20% I subtracted from your
equity originally".

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ryanjmo
How exactly does a non-technical co-founder start earning revenue or have over
10K users? Someone must be doing their development? While this situation is
possible, it seems unlikely.

Also, why do you get extra equity if you have raised VC funds. To me the point
of a business is not to raise VC funds but to make money.

I also dislike the 'has significant experience or connections'. If you polled
every single non-technical co-founder, I'm sure they would insist they have
both those things. That is not really quantifiable.

I don't think this really makes sense and this will apply to only a very small
set of start-ups.

I hope no one uses this...

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gyardley
A technical cofounder should get as much equity as he or she is able to
negotiate.

Technical cofounders end up feeling burnt - or walking away from opportunities
feeling like non-technical cofounders are completely delusional jerks -
because they don't have as much experience negotiating. When that non-
technical cofounder puts an offer of 10% or 20% on the table, he _might_ just
be an idiot, but he might be expecting you to press back hard with a
counterproposal because that's what _he_ would do in this situation.

Instead of working out formulas which will allow you to justify why your
equity is what it is, learn to negotiate. The best book I've read is Roger
Dawson's 'Secrets of Power Negotiation'. Then, practice.

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st3fan
This is the biggest piece of BS that I have ever seen. If you want to work
with a reward system then _hire_ someone as an employee and give them a bonus
(money, options, whatever) when they reach those goals.

Having this sort of stuff between co-founders only builds up pressure, tension
and will ultimately lead to people leaving.

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kno
This article reminds me of an actual life situation I’m currently living. A
friend of mine is an entrepreneur; MBA guy he has under his belt, couple of
well funded, failed, heavily tech startup.

The guy is very smart and has tons of ideas, most of them requiring a lot of
tech implementation. His downfall according to my own analysis: his lack of
respect for tech guys, he is stuck with the ninety outsourcing mentality, he
basically sees a tech guy as some dude that work can be outsourced anytime to
India or any other place in the world.

I think a non tech guy, an MBA guy who wants to succeed in Tech startup need
to get in trustful and respectful partnership with tech guy(s). Tech guy
should have an equity base on how important his contribution really is to the
business. With my friend startup I have seen poorly executed tech companies
failing miserably despite being well funded.

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st3fan
Also, I've been in numerous situations where the technical team (and techie
co-founder) deliver time and time again while the non-technical co-founder
does not manage to sell or monetize the product. If you want to play the blame
game then this should work both ways.

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Rickasaurus
Pfffft. I already have a working prototype, with 10k users and I'm only
getting 35%? You can take a walk pal.

~~~
roel_v
No, the -x% is subtracted off the techie's part. The non-technical founder
gets 50% or more.

If you're a technical founder and have a prototype & users, the article isn't
for you.

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chegra
What does the non-technical founder do that the technical founder can't?

I have see alot of cases where the biz guy says he has the connect or he will
sell the product but when its built, he expects the techie to come along with
him and sell it. Or he simply says the connect fell thru.

Alot of times I sit and think what would I have a business guy do? Write a
business case? Write a marketing plan? Raise capital?

Then I say to myself all these can be done by me and more than likely the the
biz guy has just as much experience as me in accomplishing these goals.

But the point is i'm confused about a biz guy's value.

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krav
The guy who builds - he gets half, minimum.

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char
I stopped reading this once I saw the huge flow chart. Not only does this
over-complicate things, but it is the completely wrong way to allocate equity
among founders.

I'm a strong believer in founders splitting equity evenly. If you want this
technical person to act like a founder, he should get an equal share. If you
want an early employee, treat him as an early employee, but don't expect him
to work like a founder.

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morelike
Add 100k for every engineer on the team, subtract 150k for every MBA on the
team.

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retube
this is nonsense. the numbers and starting points are completely arbitary.
Every business is different, every founder will have different skills and
contribute in varying ways and to differing degrees.

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anamax
Here's how to value past work.

Imagine that you are sitting in a coffee shop with your biz person. Someone
walks up, shows you a prototype and offers to sell it and the idea. For the
sake of argument, said someone is selling exactly what the biz person claims
is so valuable.

How much will you pay for it? How much will your biz person pay for it?

That's when you find out that the biz person feels that their contribution
going forward is significantly more than yours.

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chaostheory
Unless the non-technical founder has a lot of involvement in the business
(e.g. the founder is a designer, the idea is very business development
intensive / sales, etc...), I think the chart should be updated to start the
tech founder at 95% ownership or more if all that's there is just an idea.

Ideas are cheap.

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mindcrime
Great, now how about an article that is based on going in the other
direction... technical founder has an idea and has it X% implemented ( where X
can be 0-whatever) and is seeking a non-technical co-founder to focus on
sales/marketing/bizdev/etc?

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hooande
Supply and demand applies to equity distribution, whether you're technical or
not. If you have skills that are rare for a particular startup, then you
should be able to demand a larger share of equity.

Every cofounder should get equity based on the question "What is this idea
worth without this person?". If you could hire any skilled programmer to
replace the technical cofounder, then they shouldn't get a large amount of
equity. If they are bringing domain knowledge, specific experience or an
uncommon level of expertise, then they should get a lot of equity.

~~~
anamax
> Every cofounder should get equity based on the question "What is this idea
> worth without this person?". If you could hire any skilled programmer to
> replace the technical cofounder, then they shouldn't get a large amount of
> equity. If they are bringing domain knowledge, specific experience or an
> uncommon level of expertise, then they should get a lot of equity.

And the same applies to non-technical co-founders.

Combine this with the "how much would you pay to buy" answer wrt valuing the
"idea", prototype/power-point, or other past work, and the equity division is
"done".

