

Ask HN: Sweat Equity Agreements – What Works and What Doesn't - matrix

For those of you that have been part of (as founders, employees or investors) a start-up that had sweat equity agreements, what aspects of the agreement did you feel worked and what did not?<p>I&#x27;m a full-time sole founder of an early stage startup. I want to bring aboard one or two partners who will work on it part-time until cash flow is sufficient to offer a salary. A lot of advice out there talks about providing sweat equity, but sweat equity agreements seem difficult to do well.
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gregcohn
It's important to strike the equity deal in such a way as to create incentives
for your actual objectives.

There is a huge, huge difference between giving someone a little equity spiff
in lieu of cash for professional services (e.g., a professional designer
friend who helps you out with a few design elements) and giving someone an
incentive to become your co-founder.

Assuming you're talking about the latter type of contributions, I would point
out that in general, doing a startup is really hard. Most people can't
contribute meaningfully to the success of one on an "on the side" basis.

It's kind of like a rock band maybe -- are you in for the jam session, or are
you bailing early because you have somewhere else to be in the morning?

Putting it another way, the _opposite_ of what you want to do is give people
an easy way to not quit their jobs to join you f/t, instead giving them a lot
of option value if you succeed without much skin in the game if you don't.

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matrix
Excellent perspective, thanks. I've decided to forego having any part-time
founders -- I agree, it just isn't possible to have enough skin in the game.

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gregcohn
Awesome. Hope you can find one or more full-time ones! (If that's the way
you're hoping to go.)

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gus_massa
If they are full-time "founders", they should get almost equal split
(33%+33%+33%, or 40%+30+30%, not 90%+5%+5%). Also, the "standard" is a 4 years
vesting scheme, with a 1 year cliff.

Some previous discussions:
[https://hn.algolia.com/?q=equity+plit#!/story/forever/0/equi...](https://hn.algolia.com/?q=equity+plit#!/story/forever/0/equity%20split)

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arisAlexis
are you suggesting that the founder with his early MVP and idea should split
equally with others that he brings on board?

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tptacek
If they're working without salary, then yes.

