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I think part of the confusion here is what determines the difference between a founder and an employee. Are there two founders? Three? Five? Seven? When di

by gsibble 11y ago

I think part of the confusion here is what determines the difference between a founder and an employee. Are there two founders? Three? Five? Seven? When did they all start working? Are they all working full time? Are they all taking a salary? Not to mention that you can't just grant equity out of thin air once a company has been founded. There are tax implications, especially after you've raised money. I can't imagine telling an investor that they're going to get significantly diluted because I have a new founder that needs 20% of the company because "all founders get the same share". If you were all there together at the inception of the company and all agree to work fulltime on the project and can contribute equally than it makes sense to split up the equity equally. But just saying "everyone should get the same share" seems to simplify things a bit much.

tptacek 11y ago
As you say, the simple (and common) case is that everyone starts working in earnest on the company at roughly the same time, and equity split is a no-brainer. A very common set of cases that is only slightly more complicated than this is the one where everyone in reality has started working in earnest on the company at approximately the same time, but for whatever reason, one of the team members feels that some work they did prior to starting the company with their partners also counts as "earnest work". Most of the point of this article is that you shouldn't complicate your company by accepting that argument; you will regret it down the road. The next most common set of cases is that "cofounder" status is used as a recruiting tool. The company really wants to work with a particular person, but that person doesn't want an employee role. This can happen months or even years after the company has been founded. The simple answer here is that a cofounder is whoever the existing cofounders say is one. I personally think you're better off keeping things simple: if you call someone a cofounder, give them an equal share of the equity. If the road ahead doesn't have enough opportunity for a new cofounder to contribute so much that they'll earn the share, don't call them a cofounder. After that, you're on your own.

by gsibble 11y ago

tptacek 11y ago

As you say, the simple (and common) case is that everyone starts working in earnest on the company at roughly the same time, and equity split is a no-brainer. A very common set of cases that is only slightly more complicated than this is the one where everyone in reality has started working in earnest on the company at approximately the same time, but for whatever reason, one of the team members feels that some work they did prior to starting the company with their partners also counts as "earnest work". Most of the point of this article is that you shouldn't complicate your company by accepting that argument; you will regret it down the road. The next most common set of cases is that "cofounder" status is used as a recruiting tool. The company really wants to work with a particular person, but that person doesn't want an employee role. This can happen months or even years after the company has been founded. The simple answer here is that a cofounder is whoever the existing cofounders say is one. I personally think you're better off keeping things simple: if you call someone a cofounder, give them an equal share of the equity. If the road ahead doesn't have enough opportunity for a new cofounder to contribute so much that they'll earn the share, don't call them a cofounder. After that, you're on your own.