

How much Equity to Co-Founder? - shestar

Co-Founder has experience,wants to invest 10k,for no work and 50% of company!Angel or Devil?<p>Im developing software for real estate and vacation rentals,hotels.I have experience in the industry,but no cash. Potential Co-Founder has successful software,wants to be part but wants 50% of company and invest $10k and do no work. I think he is crazy.But i want him on board. How do you measure potential value of a company at this early stage to negotiate equity in proportion to investment?
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gus_massa
Every situation is unique. It depends on the connections, previous experience,
and how much work will they put in the project. Just for reference, YC invest
~$20K for ~%7 equity. So, 50% for $10K appears to be a lot.

[http://ycombinator.com/apply.HTML](http://ycombinator.com/apply.HTML)

> _3\. We decide who to fund after each day of interviews. Yes decisions will
> include the amount we 'll invest and the percent of the company we'd want
> for it. We usually invest $11,000 + $3000n, where n is the number of
> participating founders, up to 3 (i.e. 2 founders get $17,000, 3 or more get
> $20,000), in return for between 2% and 10% of the company. The average is
> 7%._

Another thing. What does “Potential Co-Founder has successful software” means?
He has another software company? Had he programmed that software? Is the
developer still working there and happy?

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shestar
Hi Gus!Yes,its clearly way out of porpotion, that i have no doubts about. I
was just wondering how the value of a start up company should ideally be
calculated, so that one´s proposal is well informed, rather than throwing
numbers in the air :)

Re your 2nd question, he doesn´t have a software company, he outsourced
development to create his application.

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drakaal
You start at 50/50 But you don't give out all the shares.

You create a company with 1M shares. You give him 10k and you 5k for the work
you've done, and 5k over the course of how much time you negotiate it should
take to get going. Then you say, "I would earn $50k a year" (or what ever
number) so I get 25 shares an hour. If he puts in Dollars he gets shares at $1
a piece.

Tweak the math, but you should get the idea. You invest sweat, he invests
money. You have pre-negotiated each, and left room for other investors to buy
in.

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shestar
hmm i don´t know...to give 50% i think you must bring something seriously
substantial to the table (not 10k!!), no matter how tweek the numbers the
investment still needs to stack up...i think equity you give should be related
to the level of investment, but also value of the business. However in early
stages, my key question is, how do you value the business to then have more or
less decent number to work with?

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drakaal
You didn't understand. You start at "equal" not 50%.

That's why in my explanation not all the shares are given out.

The reserve lets you both work to add equity, you can work together and stay
equal, or one of you can do more to change the ratio.

