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Ask YC: Employee as a partner

Hi, I'm considering of making one of my employee at my startup as my partner. He's very talented and I would like to keep him in the company for as long as possible. My startup is 1 week old and I had already considered in making this employee my partner at the beginning. My question is how much of the company should I share with him? Considering that he is a paid employee who did not contribute any funding into the company, should I still pay him the wage I am paying him now (several dollars above min. wage at this point with 1% profit-sharing) while asking for some cash investment into the company? He is asking for 25% of the equity... Thanks a bunch.

noonespecial 18y ago
I'd say if he wants 25% of the equity, he should be paid no more than 25% of what you are being paid. Less if you invested cash up front and he didn't. What you don't want is to let people have it both ways, collecting a salary as if it were BigCo and getting massive chunks of equity as well.
- nostrademons 18y ago
  I'd say that if he's very talented and you really want to keep him, you should give him the 25% equity. Chances are, you can't do it on your own, and you're not going to get founder-level effort without a founder-level stake. There was a story in Founders at Work about the Hotmail founders. The way they worked it was that the guy with the family quit his job, and the other guy gave him half his salary. In particular, give up the illusion that startups are fair. You're going to get screwed over in your startup, and someone will inevitably end up doing more work or putting up more of the cash. The trick is to get screwed over by the right people, so that it all works out in the end. If he really is good enough that he'll make the difference between success and failure, give him the 25%. If not, why are you working with him? This all assumes that you trust him, i.e. have a good working relationship with a decently long history. But if you don't trust him, why are you starting a company with him?
quicksilver1024 18y ago
I'm not being paid as of yet since there is no income. We are still working on demo products to show prospective clients. Should he not be paid then?
- xenoterracide 18y ago
  not having any experience to say. I would say no. If you make him a partner he doesn't require a wage like an employee would, since his potential benefit would be higher, as would his risk. When the cash flows then everyone gets it. However, you must handle that tactfully, giving him the chance to remain employee if he wants. Of course you may have to explain the reason why an employee would get payed where a partner making the risks wouldn't.
  - quicksilver1024 18y ago
    I can say right now that it would be difficult for him to accept 25% equity while giving up his salary. The guy wants it both...

noonespecial 18y ago

I'd say if he wants 25% of the equity, he should be paid no more than 25% of what you are being paid. Less if you invested cash up front and he didn't. What you don't want is to let people have it both ways, collecting a salary as if it were BigCo and getting massive chunks of equity as well.

nostrademons 18y ago
I'd say that if he's very talented and you really want to keep him, you should give him the 25% equity. Chances are, you can't do it on your own, and you're not going to get founder-level effort without a founder-level stake. There was a story in Founders at Work about the Hotmail founders. The way they worked it was that the guy with the family quit his job, and the other guy gave him half his salary. In particular, give up the illusion that startups are fair. You're going to get screwed over in your startup, and someone will inevitably end up doing more work or putting up more of the cash. The trick is to get screwed over by the right people, so that it all works out in the end. If he really is good enough that he'll make the difference between success and failure, give him the 25%. If not, why are you working with him? This all assumes that you trust him, i.e. have a good working relationship with a decently long history. But if you don't trust him, why are you starting a company with him?

quicksilver1024 18y ago

I'm not being paid as of yet since there is no income. We are still working on demo products to show prospective clients. Should he not be paid then?

xenoterracide 18y ago
not having any experience to say. I would say no. If you make him a partner he doesn't require a wage like an employee would, since his potential benefit would be higher, as would his risk. When the cash flows then everyone gets it. However, you must handle that tactfully, giving him the chance to remain employee if he wants. Of course you may have to explain the reason why an employee would get payed where a partner making the risks wouldn't.
- quicksilver1024 18y ago
  I can say right now that it would be difficult for him to accept 25% equity while giving up his salary. The guy wants it both...