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IMO the distinction between "founder" and any executive-level hire before your B round are largely meaningless. You should know pretty early on what roles your
by exelius 11y ago
IMO the distinction between "founder" and any executive-level hire before your B round are largely meaningless.
You should know pretty early on what roles your core leadership team needs to have. You should set aside equity for those roles as if they were founders -- especially for senior people, who are often giving up a lot in salary to work for a startup. You're obviously not going to give founder equity to a CS grad fresh out of college, but maybe you should for say, your head of customer relations (if customer service is a strategic driver for you, of course). You should especially give founder equity to anyone whose job is to establish a department from nothing.
And does it really matter in the end anyway? If your company fails, your equity is worth $0 no matter how much you have. If your company is the next Google, then you're all going to be so rich it won't matter. But I would much rather have leadership who is heavily invested in the success of the company than someone who is just going to bolt to start his own company after 2 years because its obvious he's not going to get a million-dollar payday.
That said, you still have to protect your equity (liquidation preferences, vesting schedules, etc). But the focus on one founder or another's role is usually meaningless: your leadership team works as a team. If you have weak links, it should be easy to get consensus around a buyout or contract renegotiation.
- tptacek 11y agoThis is contrary to my own experience. Executives hired after an A round but before a B round can have wildly different incentives than a true owner does.
- exelius 11y agoIf you set the vesting schedule properly, they shouldn't. But given how easy it still is to get A round money, and how most of the work of building a competitive advantage happens between A and C rounds, IMO you have to compensate them like founders if you expect them to build your company.
- cperciva 11y agoIf your company fails, your equity is worth $0 no matter how much you have. If your company is the next Google, then you're all going to be so rich it won't matter. You sound like a VC. While some investors might not care about any exit smaller than Google, let me assure you that there are plenty of companies which are worth more than $0 but less than $23B; if a company is acquired for $5M, there's a big difference between owning 5% and owning 50%.
- exelius 11y agoIf a VC-funded company is acquired for $5M, the founders likely aren't getting anything - liquidation preferences from angel/seed and A round would likely wipe them out almost entirely. Equity in an early company is 100% based on potential. Why should the guy who filed the paperwork and found an investor claim all the equity for a company he has not yet built? What about the efforts of the other employees (who will probably end up doing just as much for the company)? Unless you're paying them an above-market salary, don't they have some right to the company they helped build?
- cperciva 11y agoWhen did I say anything about being VC-funded? There are plenty of us who bootstrap companies into that range. As patio11 commented recently: "There appears to be a liquid market for businesses which are profitable. That is a Tokyo word. Means 'makes money'"