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I'm in the "thought provoking post, but disagree!" camp on this one. As a guy who has been the CEO for most my startups, I'd NEVER say that I deserve more equi

I'm in the "thought provoking post, but disagree!" camp on this one. As a guy who has been the CEO for most my startups, I'd NEVER say that I deserve more equity because of that. Also, 5% for the IDEA? Jeebus. Is THAT idea the source of your eventual triumph? Or is it the 100 ideas that come later? If you pivot from your idea 6 months down the road in a direction your co-founder suggests, does he get a portion of that 5%? Or perhaps more, because it's your (now shown to be a bad) idea that wasted 6 months? I DO agree that you need rules for who wins when a disagreement can't be resolved-- you can have those rules without handing over equity. You should also have rules for dissolution. Co-founders are a market like any other. With these rules, and with Dan's outstanding reputation, I have no doubt that he could land a co-founder. But it'd always be a lesser co-founder than he COULD get. Minority shareholders are also more likely to bolt/get grumpy when things get rough. In short, Dan's trying to maximize his personal wealth in the (exceedingly rare) event that the startup wins (sees liquidity) rather than maximizing for the company's chance of success.

TheIronYuppie 15y ago
I'm more in the "thought provoking and agree" camp. I'm not sure that of the potential downsides to Dan's strategy, a significant impact to the success of the company would be among them. The idea _does_ get too much value here - I'd definitely put that at zero. But in my startup experiences, the CEO _does_ have to deal with a lot more annoying shit, and put her name on the line far more than anyone else, and should get the credit for doing so. Further, I'm more in the Zappo's camp here - if a minority shareholder wants to bolt, I could not be happier. Leaving a company is always a hard decision, and if they're not cut out, AND they've come to that conclusion on their own, then FANTASTIC. I don't think that having 50% equity makes ANYONE more likely to stick around - you either have it in your DNA or you don't.
- sshumaker 15y ago
  You're arguing that the CEO should get more because he has to deal with more annoying shit? It's just as easy to argue that the tech co-founder should get more because he'll almost certainly end up working longer hours - and be the one who has to fix shit at 3am when the servers go down. The fact is, both co-founders have their own reasons to feel entitled to a larger piece of the pie. But the truth is, it's all subjective - and nigh impossible to really weigh whose contribution is more important to the overall success of the company. Especially on day 1. So at the end of the day, what really matters is the perception of fairness. If you give both founders an equal share, while both may feel that they are entitled to more of the piece, it's hard to argue that it's not a fair arrangement. Nickel and diming one of your co-founders will only create resentment down the road. And for what?
  - TheIronYuppie 15y ago
    Annoying is the wrong word - had HN had the feature to edit/update I would :) I do think the person who takes the title of CEO is risking more, and than deserves credit. They have their name in the public, and reputation on the line more than anyone else in the company (and, ideally should be up at 3 am as well, either fixing servers, or cold-emailing PR firms, or working on investment decks, blah blah blah). Greater risk deserves greater upside - while it's just a rule of thumb, I think Dan's post is a good starting point for the conversation on how to recognize that.
    - mattmanser 15y ago
      I hate that phrase 'reputation on the line'. Most companies don't have a CEO who have a reputation. And companies fail. So what, it's life. Stop worrying about a thing that's not actually valuable.
- webwright 15y ago
  "I'm not sure that of the potential downsides to Dan's strategy, a significant impact to the success of the company would be among them." Really?! Employ that strategy and then interview a series of great co-founder candidates. If they bring more to the table than you, imagine their response when you say, "You're bringing more to to the table than I am, but given that I will be CEO and the idea is mine, I think I should be getting slightly more equity than you." The "you should have this in your DNA and thus shouldn't be motivated by equity" argument has nothing to do with Zappos. Staying or leaving is almost always based on a lot of things (equity, comp, passion, team, opportunity, risk etc). Everyone weighs those differently, but very few people ignore the equity/opportunity part of it entirely. If you subscribe to that argument, why exactly are you reaching for more than half of the equity pie? Or reaching for ANY of it? And why offer stock options at all? Telling people to "do it for the love of the game" is a pretty self-serving thing to say.
  - danshapiro 15y ago
    Tony, I think you're arguing with a strawman. Per the original article, if the CTO is bringing more to the table than you, then you get +5 for being CEO, and they get +5 for idea, and/or +15 for patent, and/or +50 for being so awesome they could get funded without you. I see people disagree with IronYuppie (I do too - I don't think the CEO job is harder than the CTO job) but I'm not sure why it's getting downvoted.
    - webwright 15y ago
      By your formula, someone with a equal or barely-lesser contribution could have a greater equity share (CEO, idea). That's my gripe, boiled down. Don't think it's a straw man. Ideally, it's close-- i.e. there is no ugly duckling. And where it's too close to call (i.e. you don't have a credible argument for why one person will have a greater contribution), I think erring on the side of almost-parity is the way to go, because stuff changes too fast and anticipating contribution is HARD. Today's shit-hot idea may be DOA in a month. Today's CEO may shift to VP Bizdev next year. Fundraising connections may come up dry when they are tapped. If any/all of that happens, then you have one guy saying, "Wait, he gets 65% of the company because of all of these contributions that really aren't working out. How non-awesome is that? And my good college buddy just asked me to jump into this NEW idea with 50% ownership... Hrm.". Those are non-trivial risks for nearly-trivial (risk adjusted) dollar figures, IMO.
danshapiro 15y ago
You're assuming that I think I'm the one with the hot stuff reputation and trying to maximize my "personal wealth". But you've got it backwards. The reputation point came from trying and failing to reach agreement with two different technical cofounders because they wanted more equity based on their reputation/connections. I was the ugly duckling, and in retrospect, they were right. I should have realized this and weighted the equity equation towards them because of their reputation and proven capabilities as compared to my own. I should have qualified the idea point: it assumes that all cofounders are deeply in love with the idea and mutually believe that it's truly innovative, unique and differentiated, versus "Let's do a daily deals site." To answer your question about what happens if the company pivots: the initial split is always wrong as more information becomes available (turns out Bob is working harder, or Jane takes the CEO title), but is almost never changed. So no.
- ghshephard 15y ago
  The "initial split" (aka Equity) frequently change. Lots, and lots of stories in the valley about early founders getting screwed through dilution. So much so, that I've become surprised when it doesn't happen at a successful company. In fact, I seem to recall there was a movie about this very topic recently...

TheIronYuppie 15y ago

I'm more in the "thought provoking and agree" camp. I'm not sure that of the potential downsides to Dan's strategy, a significant impact to the success of the company would be among them. The idea _does_ get too much value here - I'd definitely put that at zero. But in my startup experiences, the CEO _does_ have to deal with a lot more annoying shit, and put her name on the line far more than anyone else, and should get the credit for doing so. Further, I'm more in the Zappo's camp here - if a minority shareholder wants to bolt, I could not be happier. Leaving a company is always a hard decision, and if they're not cut out, AND they've come to that conclusion on their own, then FANTASTIC. I don't think that having 50% equity makes ANYONE more likely to stick around - you either have it in your DNA or you don't.

sshumaker 15y ago
You're arguing that the CEO should get more because he has to deal with more annoying shit? It's just as easy to argue that the tech co-founder should get more because he'll almost certainly end up working longer hours - and be the one who has to fix shit at 3am when the servers go down. The fact is, both co-founders have their own reasons to feel entitled to a larger piece of the pie. But the truth is, it's all subjective - and nigh impossible to really weigh whose contribution is more important to the overall success of the company. Especially on day 1. So at the end of the day, what really matters is the perception of fairness. If you give both founders an equal share, while both may feel that they are entitled to more of the piece, it's hard to argue that it's not a fair arrangement. Nickel and diming one of your co-founders will only create resentment down the road. And for what?
- TheIronYuppie 15y ago
  Annoying is the wrong word - had HN had the feature to edit/update I would :) I do think the person who takes the title of CEO is risking more, and than deserves credit. They have their name in the public, and reputation on the line more than anyone else in the company (and, ideally should be up at 3 am as well, either fixing servers, or cold-emailing PR firms, or working on investment decks, blah blah blah). Greater risk deserves greater upside - while it's just a rule of thumb, I think Dan's post is a good starting point for the conversation on how to recognize that.
  - mattmanser 15y ago
    I hate that phrase 'reputation on the line'. Most companies don't have a CEO who have a reputation. And companies fail. So what, it's life. Stop worrying about a thing that's not actually valuable.
webwright 15y ago
"I'm not sure that of the potential downsides to Dan's strategy, a significant impact to the success of the company would be among them." Really?! Employ that strategy and then interview a series of great co-founder candidates. If they bring more to the table than you, imagine their response when you say, "You're bringing more to to the table than I am, but given that I will be CEO and the idea is mine, I think I should be getting slightly more equity than you." The "you should have this in your DNA and thus shouldn't be motivated by equity" argument has nothing to do with Zappos. Staying or leaving is almost always based on a lot of things (equity, comp, passion, team, opportunity, risk etc). Everyone weighs those differently, but very few people ignore the equity/opportunity part of it entirely. If you subscribe to that argument, why exactly are you reaching for more than half of the equity pie? Or reaching for ANY of it? And why offer stock options at all? Telling people to "do it for the love of the game" is a pretty self-serving thing to say.
- danshapiro 15y ago
  Tony, I think you're arguing with a strawman. Per the original article, if the CTO is bringing more to the table than you, then you get +5 for being CEO, and they get +5 for idea, and/or +15 for patent, and/or +50 for being so awesome they could get funded without you. I see people disagree with IronYuppie (I do too - I don't think the CEO job is harder than the CTO job) but I'm not sure why it's getting downvoted.
  - webwright 15y ago
    By your formula, someone with a equal or barely-lesser contribution could have a greater equity share (CEO, idea). That's my gripe, boiled down. Don't think it's a straw man. Ideally, it's close-- i.e. there is no ugly duckling. And where it's too close to call (i.e. you don't have a credible argument for why one person will have a greater contribution), I think erring on the side of almost-parity is the way to go, because stuff changes too fast and anticipating contribution is HARD. Today's shit-hot idea may be DOA in a month. Today's CEO may shift to VP Bizdev next year. Fundraising connections may come up dry when they are tapped. If any/all of that happens, then you have one guy saying, "Wait, he gets 65% of the company because of all of these contributions that really aren't working out. How non-awesome is that? And my good college buddy just asked me to jump into this NEW idea with 50% ownership... Hrm.". Those are non-trivial risks for nearly-trivial (risk adjusted) dollar figures, IMO.

danshapiro 15y ago

You're assuming that I think I'm the one with the hot stuff reputation and trying to maximize my "personal wealth". But you've got it backwards. The reputation point came from trying and failing to reach agreement with two different technical cofounders because they wanted more equity based on their reputation/connections. I was the ugly duckling, and in retrospect, they were right. I should have realized this and weighted the equity equation towards them because of their reputation and proven capabilities as compared to my own. I should have qualified the idea point: it assumes that all cofounders are deeply in love with the idea and mutually believe that it's truly innovative, unique and differentiated, versus "Let's do a daily deals site." To answer your question about what happens if the company pivots: the initial split is always wrong as more information becomes available (turns out Bob is working harder, or Jane takes the CEO title), but is almost never changed. So no.

ghshephard 15y ago
The "initial split" (aka Equity) frequently change. Lots, and lots of stories in the valley about early founders getting screwed through dilution. So much so, that I've become surprised when it doesn't happen at a successful company. In fact, I seem to recall there was a movie about this very topic recently...