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Ask HN: How to split equity with a slightly later co-founder?

Hey HN, I worked on a side project from Aug-Feb of 2020-2021, when I decided it could actually become a product that I'd like to release and, depending on reception, quit my job to grow into a business. Since Feb, I've been productionizing the codebase, setting up infrastructure, creating pitch decks, business plans, and feature specs for the upcoming beta. I've written about 100k lines of code, which are split between data processing pipelines and a front-end web app. I realized about a month ago that I wasn't going to make my target release date alone, and asked if my friend would help out. He loved the idea and said he'd be happy to. After introducing him to the idea, I told him we should come up with an equity split (even if it feels premature) that's favorable to both of us just in case. He, being unfamiliar with startup investing and equity splits, told me to come up with a number and it'd probably be reasonable. I'm struggling to do that. If I were to try and do the whole thing on my own, I wouldn't be able to launch by my target date without cutting significant features, but I do have the skillset to do it. He has no background in the business side of things. So, we're looking at a co-founder who: - Will be working part-time (same as me) - Has a similar programming skillset (but more experience in web app dev) - No business background - Coming into a project where the idea and release are mapped out, and 100k lines of code are written. I want him to be motivated in case the beta goes well, but a 50/50 or 60/40 split seems unfair. To complicate it even more, the beta should be revenue-generating from day one, but of course who knows how well it'll perform. Could be a few hundred in revenue (10+ users), could be tens of thousands (200+ users). I'm considering an 85/15 split with a 50/50 revenue split after expenses. Am I totally wrong?

gregjor 5y ago
78.378927% to 21.621073% seems fair, based on the details you provided.
- unsurecofounder 5y ago
  Thanks for responding -- do you mind filling me in on how you got to those numbers?
  - gregjor 5y ago
    Mathematica running thousands of Monte Carlo simulations.
onion2k 5y ago
He, being unfamiliar with startup investing and equity splits, told me to come up with a number and it'd probably be reasonable. Do not accept that response. He has to have input in the negotiation or he'll be able to claim you deliberately ripped him off at some point in the future. If this company grows to something significant you need to both be happy with the split. My suggestion would be something like 90/10 to start with, with a further 40% vested over the next few years. Eg for each year you're both working on the business he gets another 10% of your share, so in 5 years time it's 50/50. If he walks away earlier he keeps less. You could add in a cliff too, so if he walks before a year or two he keeps nothing but the original 10% offered. The problem with that is that it gets complicated to write the contract, and it also makes taking on investment a bit harder (albeit not much). But also... 100k lines of code are written. You should have launched something ages ago. Right now you're working on a ton of features that you have no idea whether or not users will need or use or even consider negatively ("This app is far too bloated to solve my simple problem..."). I'd cut all the planned features and launch now if that's an option. You need to know if the work you've done already is the right work.
- unsurecofounder 5y ago
  Thanks for responding! That's a great point. I'll have a conversation and explain that his input is instrumental to us reaching an amicable split. I should have put this in the post -- there's absolutely a vesting plan in place: 4 years monthly w. 1 year cliff. Plan is to trigger it only when we both decide to work full-time on the project (and hopefully get seed funding after the beta demonstrates user growth and revenue potential). The market we're serving is seasonal and won't be "open" (as it were) until September, hence the delayed launch. But otherwise I completely agree. I've launched a small alpha proof-of-concept that's been well received, for what it's worth.
mytailorisrich 5y ago
> If I were to try and do the whole thing on my own, I wouldn't be able to launch by my target date without cutting significant features I think that's exactly what you should do: Rank features and focus on what is required/can be included in order to ship ASAP, cut the rest.
- unsurecofounder 5y ago
  Thanks for responding. I've been struggling with this too. I'm confident in my ability to deliver on feature #1. If features #2, #3, and #4 make the beta launch 2-3X more effective (in terms of adoption rate and total users) -- isn't it worth giving up a piece of the company? I wonder about instead giving 100% of the revenue from the beta capped at some freelance rate and compensating him for his time that way instead. Over the course of working together, I'd pretty quickly figure out if he's a good partner to have for the company.

gregjor 5y ago

78.378927% to 21.621073% seems fair, based on the details you provided.

unsurecofounder 5y ago
Thanks for responding -- do you mind filling me in on how you got to those numbers?
- gregjor 5y ago
  Mathematica running thousands of Monte Carlo simulations.

onion2k 5y ago

He, being unfamiliar with startup investing and equity splits, told me to come up with a number and it'd probably be reasonable. Do not accept that response. He has to have input in the negotiation or he'll be able to claim you deliberately ripped him off at some point in the future. If this company grows to something significant you need to both be happy with the split. My suggestion would be something like 90/10 to start with, with a further 40% vested over the next few years. Eg for each year you're both working on the business he gets another 10% of your share, so in 5 years time it's 50/50. If he walks away earlier he keeps less. You could add in a cliff too, so if he walks before a year or two he keeps nothing but the original 10% offered. The problem with that is that it gets complicated to write the contract, and it also makes taking on investment a bit harder (albeit not much). But also... 100k lines of code are written. You should have launched something ages ago. Right now you're working on a ton of features that you have no idea whether or not users will need or use or even consider negatively ("This app is far too bloated to solve my simple problem..."). I'd cut all the planned features and launch now if that's an option. You need to know if the work you've done already is the right work.

unsurecofounder 5y ago
Thanks for responding! That's a great point. I'll have a conversation and explain that his input is instrumental to us reaching an amicable split. I should have put this in the post -- there's absolutely a vesting plan in place: 4 years monthly w. 1 year cliff. Plan is to trigger it only when we both decide to work full-time on the project (and hopefully get seed funding after the beta demonstrates user growth and revenue potential). The market we're serving is seasonal and won't be "open" (as it were) until September, hence the delayed launch. But otherwise I completely agree. I've launched a small alpha proof-of-concept that's been well received, for what it's worth.

mytailorisrich 5y ago

> If I were to try and do the whole thing on my own, I wouldn't be able to launch by my target date without cutting significant features I think that's exactly what you should do: Rank features and focus on what is required/can be included in order to ship ASAP, cut the rest.

unsurecofounder 5y ago
Thanks for responding. I've been struggling with this too. I'm confident in my ability to deliver on feature #1. If features #2, #3, and #4 make the beta launch 2-3X more effective (in terms of adoption rate and total users) -- isn't it worth giving up a piece of the company? I wonder about instead giving 100% of the revenue from the beta capped at some freelance rate and compensating him for his time that way instead. Over the course of working together, I'd pretty quickly figure out if he's a good partner to have for the company.