Ask YC: Sharing ownership with nontechnical founder?

[silencio]

I'm involved in my first startup (cry or laugh I can't decide yet), and we're planning on discussing how to share ownership (and other similar concerns) sometime next week, and I was hoping to get some advice from here beforehand. As far as I know, we'd be considering a CA LLC, we're a mix of self-funding and bootstrapping, and the startup is (mainly) a website.

Simply, there are three people, one is nontechnical and the other two would be doing all of the development and some of the nontechnical stuff as well. Between us two devs, the third guy who I brought in last is going to be doing most of the work and I'm going to pick up the rest (iPhone app anyone? :D ) and do all the leftover nontechnical miscellany..and I'm fine with a small share in exchange. But it's the nontechnical one who had the idea in the first place and is currently the sole source of self-funding by choice (piggybacking on her existing hosting and paying for domains and whatnot).

How do you deal with this kind of situation? How much weight should we be giving to the idea compared to the execution, which is most of the work but wouldn't exist without the idea? How much weight to give to someone funding everything, no matter how trivial it may be? It's pretty easy (to me) to determine how us two devs would be splitting it based on the work we'd be doing, but then when we have to consider all three of us it's hard to determine, and I don't know if an equal 3 way split would be okay with everyone (and I'd feel uncomfortable with that unless I were more involved...). Any insight would be much appreciated.

[mixmax]

Split three ways evenly, it's the easiest and once you go down the slope of differentiating the ownership it starts to become really complicated really fast. You'll spend a lot of time nit-picking and a lot of "yeah but you have more shares so you should do this" talk.

Besides, ownership only matters when you sell in which case there'll probably be plenty for all of you. In the daily business you'll (I guess) all take the same paycheck from the company. So it doesn't matter so much.

That's based on my experience anyway.

[davidu → mixmax]

I think this is a terrible idea. I definitely believe in the one founder mentality. There needs to be one person who drives the vision, and a team to execute on it.

If I was going to have two co-founders, I wouldn't consider offering the other founders more than a 52% / 24% / 24% split, with one person clearly defined as the leader (be it me or one of the other founders) and driver of the vision.

If you aren't comfortable with that from a voting standpoint, simply require all important votes (sale of company, transfer of equity, dilution) to require a supermajority vote. Lawyers have standard language that clearly define these kinds of scenarios.

But 1/3 1/3 1/3 is just asking for trouble on minor details down the road when one person needs to clearly be in charge.

[silencio → davidu]

With 52% ownership of a web startup specifically belonging to a nontechnical cofounder (she would be the logical "leader" with the vision) is that who knows what will happen on a bad day. I've already shot down one suggestion of hers because it was irrelevant to the service we were going to offer. While a supermajority vote makes complete sense for important votes, 52/24/24 with the two 24% to the developers would be impossible on the less important votes if it was technical in nature and she just didn't get why they may be problematic/impossible.

I'd feel a lot more comfortable with a 52/24/24 split if only she knew more. But she's relying on us to provide everything design/development-related without being fully knowledgeable about it, and without us she's dead in the water.

[davidu → silencio]

She should be delegating all technical decisions to you. That's a part of being a leader. It requires leadership and knowing when to trust and delegate to your team.

[mixmax → davidu]

I think that empirical evidence supports my view.

The big problem with a 52% / 24% / 24% split is that nobody wants to be a 24% partner. Particularly since they've left the de facto running of the company to the 52% partner. I've seen people try this, and it never seems to work out.

[davidu → mixmax]

Nobody wants to be 24% partner? I find that hard to believe. I hire people offering less than 1/10 of 1% of equity and I am able to hire and retain absolutely amazing talent.

[silencio → mixmax]

That's what I thought, but I wasn't sure. Just thinking about the idea of how to differentiate that is becoming a massive headache. But if we split three ways evenly, we might run into the "you're not doing enough work (compared to how much you own)" problem, which is the biggest one for me. I don't want the two to be resentful at me, and I don't want the other developer to resent that the nontechnical one is getting an equal share. Somehow when it was only me and the nontechnical one this was never a problem and it was an obvious 50-50 split, but not so obvious anymore.

The nontechnical founder is really insistent on selling should this site become successful enough. I don't think any of us would oppose that, but I just don't want to run into the above problem.

Thanks!

[lethain → silencio]

It sounds like the non-technical founder wants to be an investor. Which would be fine if they are investing enough money to buy their stake, but if they aren't, then you need to make sure that they'll have a specific role in the company that they're willing to play, and that both you and the third founder feel is important. Otherwise, you're not cofounders, and you need to figure out a different way for splitting things.

[silencio → lethain]

That is a really interesting thought that I've never given any consideration to because I've always just assumed we were all cofounders. I will point that out to her when we do talk, but I'm fairly sure there were some roles in the company she was interested in playing. Who knows, maybe she might find that to be more appealing.