
Ask HN: Co-founders 4-years-in to revisit equity split - co-founder-t
We were those not-so-smart entrepreneurs who didn&#x27;t have co-founder agreement in place when started the business. The terms were agreed verbally. 4 years in we are debating what were the original terms.<p>- Original terms: Co-founder A is taking care of all the business expenses and paying co-founder B a minimum viable salary.<p>- Co-founder A does not communicate how he treats the money he put into the business.<p>- Co-founder B assumes co-founder A is doing an equity investment with that money.<p>- Co-founder B agrees on 15%&#x2F;85% equity split assuming the investment is for a few years until the business is profitable or raised capital.<p>- Co-founder A bootstrapped the business for 4 years ($300-500K) and decided to raise capital.<p>- Co-founder A says that the money he spent on a business should be treated as a debt to the business. And wants this money to be repaid to him at this on later funding rounds.<p>- Co-founder B says that if that money is a debt and not an equity investment, the initial equity split should be revisited.<p>2 questions:<p>- Were the co-founder B reasonable to assume that co-founder A is making an equity investment and not debt while accepting a lower equity split?<p>- Does Co-founder B have the grounds to insist on revisiting the initial equity split because after 4 years it is apparent that co-founder A treats his money as debt &amp; not equity investment?
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redm
In short, Yes and Yes.

Even if you had an equity agreement day one, it's unlikely that it would
represent what happened in the business over the last four years. Its always
OK to revisit this with you co-founder, otherwise it will eat you alive.

It's reasonable to assume the funding was equity investment. It may be more of
a case of, four years in, your co-founder wants to get some money back out,
and calling it debt is the easy way to do that.

I find, as a general rule, when money on is on the table, founders start
counting their nickels and dimes and re-visiting their decisions to maximize
their benefit.

Time is the most valuable asset we have and yet its often undervalued as a
contribution to a business.

I hope that helps!

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temper123
No investor is going to invest in this business if cofounder A expects to be
reimbursed. What's the point of investing since nothing material will change
other than giving cofounder A his money.. Added to the fact that cofounder A
is NOT selling his equity, it sounds like a bad deal for any investor. Seed
money is called sunk cost in economics (ie/ once you spend it, its gone).

