
Ask HN: Where do you draw the line between a co-founder and early employee? - mailarchis
When you are just starting out and building your team, how do you decide who is actually a co-founder viz-a-viz an early employee with equity
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hwestiii
I will be that guy and say that all the discussion around who is allowed to
self-designate as a ”founder” is fatuous and fetishistic. It’s an obvious
attempt to amplify one’s importance beyond sense in order to provide some
level of resume inflation and just dilutes the meaning of the word.

In my opinion “founder” is not a word someone should be unilaterally
conferring upon themselves, but is more meaningfully applied only by others.
Until you are making actual money, you are someone trying to start a business.
When you actually make money, that is at least break even, perhaps you can
consider yourself an “entrepreneur”. Leave the identification of “founders” to
people like the Wall Street Journal if you wish for the word to retain any
meaning at all.

~~~
pc86
I agree with you with the caveat that I think it is important for two things:
equity, and expected work.

If I'm a co-founder I am going to work day and night on our problem space, the
tech, whatever my role is. I'm going to be thinking about it during dinner.
I'm going to wake up early and stay up late and work on it during lunch breaks
if I'm still an employee somewhere. I'm willing and expecting to work for $0
cash comp for months or years, or until we get investment. I'm also going to
expect an equal share of equity to my other co-founders, and expect them to
work more-or-less a "fair" amount when you compare our different equity
stakes. I also expect to _know_ what their equity stake is. Ballpark I would
look for a floor of 25% equity before pulling out a pool for early employees.

If I'm an early employee, I will probably work more than 40 but I'm certainly
not working 80-90. When I'm not working, I'm _not working_. You're probably
not getting my cell phone number. You're going to have to pay me _something_ ,
and the first time a check bounces or a direct deposit is missed I'm gone. But
I'm also going to be happy with a _lot_ less equity than 25%.

~~~
brudgers
_I 'm willing and expecting to work for $0 cash comp_

That's illegal in a C-corp, the common form of startups (in the Silicon Valley
sense of "startup"). Everyone is an employee and is required to be paid the
minimum wage established by law. And somewhat ironically, the liabilities
created by working for zero compensation are a reason for investors to forgo
investing particularly since it correlates with lack of profitability.

~~~
pc86
You're typically not going to become a C-Corp until you take investment, at
which point you'd draw a minimal salary.

~~~
brudgers
Without being a C-corp there’s nothing in which to have equity or rather
“equity” doesn’t mean anything much.

~~~
pc86
This is just not true. You can absolutely own part of a business that isn't a
C-Corp. I've purchased various percentages of LLCs and S-Corps (and LLCs taxed
as S-Corps) and not once have any of my attorneys, accountants, or the IRS
come to the conclusion that the equity "doesn't mean anything much."

~~~
brudgers
C-corps form the context of my comment because they are discussed up thread.
Sorry for assuming that you didn’t need clarification.

~~~
pc86
> Without being a C-corp there’s nothing in which to have equity or rather
> “equity” doesn’t mean anything much.

Completely unwarranted rudeness notwithstanding, this comment is still 100%
false.

You brought up C-corps, and legal/accounting structure isn't mentioned in any
of the parent comments. Which is fair, but like I said nobody first starts a
business by filing paperwork to incorporate a C-corp. They work as an LLC or
sole proprietorship, and if/when they reach a point where it makes sense, they
restructure. I even alluded to that in my sentence you took issue with, "or
until we get investment." Yes, you'll absolutely restructure as a (Delaware)
C-corp if you take venture investment, and this minimum wage law would apply -
but not to the co-founders, as @adventured noted.

~~~
brudgers
Obviously, clarification would not have made any difference.

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indymike
In my current company, I wish I had handed out the cofounder title more
liberally to early employees. The engineer in me wanted to stay true to the
definition of "founder" but in retrospect, all of the initial employees would
have loved to be founders, too (and with that, behaved as cofounders). The
next startup I do will have a small parking lot full of cofounders.

~~~
afarrell
> all of the initial employees would have loved to be founders, too (and with
> that, behaved as cofounders)

Unless you actually had a conversation with them with real clarity about
expectations, be _very_ careful in holding this conclusion.

> The next startup I do will have a small parking lot full of cofounders.

Do not do this until you have lived in a communal house with at least 15
people and stayed up until at least 3am discussing kitchen-cleaning
responsibilities.

~~~
tagami
If you have to stay up until 3am to discuss kitchen-cleaning responsibilities,
you're living in the wrong house.

~~~
someguydave
I think that is his point.

~~~
afarrell
yes.

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jacquesm
If someone joins you within the first 30 days, contributes as much as you do
and is taking as much risk as you do then they are an _equal_ co-founder.

If someone joins you later, gets paid from day #1 (and you don't), does a 40
hour work week while you work 80 then they're an employee.

In between you can vary the percentage to reflect the difference.

~~~
caseysoftware
^ This is the simplest, easiest explanation.

I'd add "who stresses about the bank account balance every day?" \- founders
do, employees don't.

~~~
icedchai
A lot of startup employees stress about this when the company misses its first
payroll. When you play around with fire (small, unstable companies...), you
eventually get burned.

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austhrow743
Founders work for free prior to investors/revenue to pay salaries. Employees
get paid a salary.

~~~
jacquesm
This is not always possible. Founders can be from very diverse backgrounds and
some may have costs they can not escape. The way to deal with that is to take
these payments as a loan from the company to the founder which will be
eventually be paid back or compensated in some other way.

~~~
pc86
I would differentiate between "getting paid a salary" and "getting a loan" and
argue they're still not getting paid because the company is basically just
floating their mortgage for them (or whatever the bill(s) may be). Especially
if the assumption is that they pay it back.

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neximo64
\- Yourself: If you have to ask you're an employee.

\- Someone else: If you have to ask/are confused on where the person sits,
employee also.

~~~
vrnvu
A great way to put it indeed. This applies so well in a huge diversity of
hierarchies (social constructs) where any manifestation of power is involved.

Also reminds me of the famous poker phrase: "If You Can’t See the Sucker,
You’re It"

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mimixco
On the YC SAFE model, there's no stock, so it isn't about that. You give away
equity using the SAFE document.

We faced this issue in my company and I definitely get the fear of giving away
something to someone unproven. I started out with the employee just on salary.
In the written agreement, we offered ownership interest over time. In
practice, I wound up giving him the full equity and the co-founder title in 3
months because of his contributions.

~~~
jacquesm
I would not recommend using the YC SAFE note without a thorough understanding
of all the implications.

~~~
fakedang
I'm curious, does anyone have experience with how the YC note compares to the
Techstars 6% offering? On the basis of amount of extra table value?

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__d
Easy. If you got stock when the company was formed, you're a co-founder.

Anyone who joins after day 1 (and before day .. 180?) is an early employee.

~~~
k__
Is it that easy?

If the company pivots around for some time it could very well be that some
early employees are doing co-founder work.

~~~
rat9988
It still wouldn't make them co-founder. I'm not sure there is such a thing as
co-founder exlcusive work.

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goopthink
In my experience, the founders are the folks who make the decision to turn an
idea into a business, before day 1. The only cofounder-exclusive work is the
preparation and work of actually defining the initial business, taking a risk
on the idea, and being a part of the incorporation process (broadly defined).
Anyone hired on after that point is an early employee, though they might be
compensated with equity, or they may be very influential, or they might do
more for the company than the founders did... but they were not the
originators of the business.

~~~
biztos
If I have an idea for autonomous robotic cat toys and you are a brilliant
marketer, but neither of us knows anything about cats, are we really going to
get very far by just _hiring_ some cat people?

I get that this actually happens a lot, but aren't companies more successful
when their founders cover the core expertise needed to make smart business
decisions?

Or is that wishful nerd-thinking on my part?

~~~
goopthink
Well, the question is in drawing the line between founder/co-founder and early
employee, and that's pretty clear to me: technically speaking, a founder is
someone/group who "founds" the company. That's it.

That said, I've seen plenty of founders that have had minimal impact on the
role and growth of the company, and are pushed out as the company grows. You
don't need to know anything about the market to found a company, you could
even totally misunderstand the opportunity and the company pivots down the
line to something completely unrelated to the original intent. Sometimes the
founders are recognized in the story, sometimes they're written out entirely
in favor of the people who came in and actualized the company that we know/see
today (i.e, McDonalds, Berkshire Hathaway come to mind).

But to your points, I think the "being able to hire the right people" is the
important part in early company success. You don't need to know the market as
long the business opportunity you've identified has _some_ merit and you've
brought on the right people. In fact, serial founders often work this way.

The first employees that you hire will take on a disproportionate amount of
work and will set the foundation for much of what will follow. So it's
important to be able to (a) hire really well at the start, and (b) reward
those employees with leadership, visibility, and equity/stake in the success
of the company. At some point, it's worth being honest with that ideas are a
dime a dozen and coming up with one and incorporating a company around it is
meaningless unless you succeed, and success comes from being able to create a
viable business. You'll need developers, you'll need operations people, you'll
need marketers, you'll need sales and customer service folks, and experts in
whatever industry you're playing in. No one person will be able to do that,
unless you've got a founding party of 10 people with clearly delineated
responsibilities (otherwise you'll have a ton of infighting over who owns what
part of the company's vision/strategy and it will all collapse).

So yeah, I think it comes down to hiring the right people, because no company
can succeed or grow on the strength of just one or two people. You'll _always_
need to bring on outside expertise. The question is what expertise you need to
bring on, in what order, and how you reward it when the company is just
getting started.

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znpy
> how do you decide who is actually a co-founder viz-a-viz an early employee
> with equity

Co-founders share both equity and liability, and their names appear on the
legal documents regarding the company foundation.

Employees (whether early or late) do not.

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ozSofi
I work in a cooperative where everybody has an equal share, so everyone is
just owner :)

~~~
fblp
What cooperative? Can you share more?

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chrisgoman
Founder = equity on day 1 or first couple of days/weeks/months

Co-Founder = more than 1 of above

Owner = equity earned after (sweat or money), founders are automatically
owners as long as you still have shares

You can be a founder but no longer own the company (sold all shares)

If you have to take money from your own pocket to keep the company going, you
are an owner - capital call anybody?

Some people actually don't want to be called founders as they think that the
title they give people when they have put out to pasture and no longer
actively contributing :)

But titles don't really matter unless that is all you are after

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brudgers
Technically, there is no difference. In a C corp, everyone is an employee. In
practical terms, the founders _might_ make decisions more jointly rather than
strictly on a basis of equity.

It's worth considering that it is probably a red flag if this becomes a
pressing issue because it smells of pettiness and/or ill-feeling. Who is a
founder doesn't change the amount of hard work that needs to be done. It's
just a distraction from it.

It's also a red flag if an early hire with equity resents not being a founder.
There's no time for that. Good luck.

~~~
C1sc0cat
Directors have a different status and may or may or may not be an employee or
worker.

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canterburry
I think there are some real practical implications of being a cofounder vs
employee

\- Right to board seats \- Access to the company's bank accounts \- Authorized
to approve spend on behalf of the company \- Access to HR data, salaries etc
\- Depending on role/stage, may need to sign tax statements or other legal
documents as a company representative \- Full insight into the company's
financial conditions \- Voice when talking/negotiating with investors \- Part
of all crucial decisions about the company's strategy

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dublin
No hard and fast rules, but generally: founders have to be present before
founding (incorporation) - this usually means they will be doing work for free
before that time; in many cases, founders may also need to put in money. (Once
you're founded, people can't work for free anymore.) This is what made me
technically an early employee rather than a founder of one of my most
successful startups - I was one of a handful of peopl who put time, but no
cash, into the company - we were the first employees, but that didn't happen
until the VC's check was in the bank. (We were somewhat unusually seed-funded
by a VC firm.) Those of us who passed on being founders either didn't have the
cash or had to keep other jobs until the newco could make a firm offer of
employment. (I more or less told them, "Great, I'll help plan and strategize
over beer at the pub after work. Other than that, call me when you have
money.) Then there are all the differences in stock class, grants vs. options
vs. warrants, etc. Usually, though it's pretty clear who were the actual
founders - they're the ones with the original idea, who worked (maybe with the
help of others) to get it to the point that a company actually could be
founded to go forward. BTW, founders aren't permanent - the one I mentioned
had to rid itself of nearly a half dozen of them in the startup process. This
is usually done with option grants or the like and a solid time-limited no-
compete. I know another who's reformed his company three times to force bad
people out. It's amazing what good lawyers can do for the people who control
the company.

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funerr
One of the ideas I had to instill more motivation is to apply @goopthink's
definition with the added idea of "reverse-title-vesting" meaning that if you
stay with us for more than X years then you become a founder too, if you were
one of the early employees (let's say up until the 3rd employee).

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notfried
At some point, there must have been this conversation with select few people
in which you together decided to start the business. These are potentially
your co-founders. In the next few weeks/months, you may expand that list, but
I believe the co-founders are the ones that take the highest risk to co-found
the company in face of high ambiguity and risk.

A good split of responsibilities is that each co-founder has a Cxx role (not
necessarily a title). You generally need to fill the roles of a CEO, CFO, COO,
CPO, CTO and CMO. This doesn't mean you need this many co-founders, as some
roles can be merged, but the responsibilities most likely have to be
distributed.

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dusted
I don't think the line should be set only in time, but also in contribution.
Did the person contribute something which is now foundational? For example
some thing in the culture or technology or something that made a real
difference to the future of the company? Then they should be given co-founder
status nevertheless.

It's been mentioned before, but making someone co-founder retroactively seems
reasonable. I'd go as far as say that someone who are present from day 0, but
does not manage to contribute in any lasting or meaningful way, may be
unconsidered as co-founder.

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nathan_f77
I think co-founders should have at least 10% equity, but you might give up to
5-10% to a first employee (depending on a lot of factors.) I guess the line
could be somewhere around 10%. I would say that equity is the most important
thing to get right, but titles are also very important and can change a lot of
the interpersonal dynamics in a startup.

[1] [https://www.cnet.com/news/tesla-motors-founders-now-there-
ar...](https://www.cnet.com/news/tesla-motors-founders-now-there-are-five/)

~~~
langitbiru
Yes, when you apply to YC, they said to be considered co-founder, one must
have at least 10% of the company.

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Icedcool
Where ever you like. As the founder, you get to draw that line.

There are examples of different perspectives that you can apply through this
thread, but as the founder(s) it is part of your job to decide this.

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akg_67
If you have to keep selling your idea, startup vision, and its future
potential to retain the person during initial phase of startup, that person is
not co-founder. S/he is an early employee. Co-founders are the one's who have
already bought into your vision and fully committed to and working toward the
vision without any prodding, convincing, encouragement etc. They independently
leading the effort and doing what need to be done to move the startup forward.

------
geebee
It's easier to say in retrospect. If an exit is financially successful, then:

You're a founder if you got _rich_.

You're a late employee if you got _paid_.

You're an early employee if you got _screwed_.

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bluehatbrit
I don't really see "founder" as a job role in the company, it's just a thing
the media say when they want to denote you as being there since for the
formation of the company. Past that you'll have actual job roles such as CEO,
Managing Director, CTO, CFO, Finance Director, etc.

If you want to get specific, I would say that founders will probably have
their names over initial incorporation documents and the stock grants during
the formation.

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owens99
YC defines it as someone with at least 10% equity.

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Kiro
I was watching Selling Sunset and one client was introduced as the founder of
Wags, but she was not one of the founders listed on their Wikipedia article.
Had a look at her LinkedIn and it looks like she was an early employee. Not
sure if it was spiced up by the show or if she's actually considered a founder
but I started thinking about the same thing.

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PopeDotNinja
Basically when you can afford to build a business with giving away founder
sized equity grants, you don’t NEED another founder, but you might want one
anyway. The title itself is meaningless.

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tedmiston
By how much equity stake they get / risk they take on.

To draw a clear line, I like the YC definition others have mentioned in this
thread of ≥ 10% == co-founder.

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dyeje
Equity.

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btbuildem
Not to be flippant, but.. on your contract?

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dublin
Also, thought I should add that if it's your name on the door, this isn't much
of a discussion.

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juandazapata
Are you paying your employee since day #1 on the job? If not, he's probably
also a co-founder.

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js4
Who cares. All that matters is how much of the company someone owns.

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bgroat
imho The only correct answer should be salary.

It doesn't need to be market rate, but if you're ever not paying someone,
they're a founder - and deserve to be represented on the cap table

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ygram
Why does it matter?

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valuearb
Elon Musk is by far the most important founder of Tesla, and he didn’t even
work there for the first few years.

~~~
pretendscholar
So not a founder?

~~~
valuearb
Yes! And no!

