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>"Because they did it correctly." Huh? They split up equity in a non-existent business that ended upcoming back to bite them on what amounts to a completely d

>"Because they did it correctly." Huh? They split up equity in a non-existent business that ended upcoming back to bite them on what amounts to a completely different project that the other co-founders did not participate in whatsoever. It was only through the honesty of these other co-founders that they were able to steer away from real trouble. Those co-founders could have given up nothing had they so chosen. That's the correct way to do things? Looks to me like this is a lesson in the exact wrong way to do it. We have laws in this country to prevent people from getting screwed. Work with people you like and trust, and focus on building a product, not on what your "stake" is.

ColinWright 14y ago
> Work with people you like and trust, and focus on > building a product, not on what your "stake" is. Sounds great, until there's money involved, and people have different opinions about what their holding should be. Shares and equity is the proper way of keeping up front and above board everyone's understanding of who owns what. > We have laws in this country to prevent people > from getting screwed. Take it to court and only the lawyers win. > It was only through the honesty of these other > co-founders that they were able to steer away from > real trouble. No, it was working with people they like and trust, as you advocate, and having formal agreements about who owned what, that enabled them to understand the position and negotiate openly and cleanly. > Those co-founders could have given up nothing > had they so chosen. Correct. Imagine, then, how much messier it would have been had those co-founders claimed that they owned 30% each.
aneth3 14y ago
> We have laws in this country to prevent people from getting screwed. Work with people you like and trust, and focus on building a product, not on what your "stake" is. The most important reason to negotiate equity early is not to avoid people getting screwed, but to avoid fundamental equity disagreements from screwing everyone. Even if you like and trust someone, this does not mean you have compatible beliefs on equity or vesting. If founder B joins founder A, and they move forward with founder A's idea, it's quite possible that years later, when they decide to raise money, founder A will insist that he deserves 90% of the equity, while founder B will want 40%. You'd also be surprised how much people's attitudes and allegiances can change when heavy hitters enter the picture and large amounts of money are at stake. Laws will not prevent you from getting screwed if you don't have any contractually established rights. If you sign an assignment of IP for your work to a company, you can't later sue for equity to avoid getting "screwed."
- tatsuke95 14y ago
  This is incredible to me. I suppose we'll just have to disagree. I'm not saying to never take care of this. But you don't end up in a Facebook-like dispute overnight. If the very first thing your company (and I use the term loosely) does after thinking of an idea is have an equity contract written up, you're doing something wrong. How do you even determine who gets what? You'd be amending it every day. >"If you sign an assignment of IP for your work to a company, you can't later sue for equity to avoid getting "screwed." You most certainly can. But you will lose, because IP assignment is clearly defined. Equity in a business with no IP, no assets and no income, before any work is done, is not. I've done government procurement in the construction industry. I understand the value and importance of contracts. You guys are talking like this is a multi-million dollar enterprise undergoing a complicated equity dispute. It's not. It was four young guys (sexist assumption!) in a dorm room with an idea. There was no business, and not a single dollar (as far as I can tell) was made based on that idea. They complicated the situation themselves. You are cynical about the legal industry, yet you think that whatever these guys scribbled down on a piece of paper with regards to an equity split, even if notarized, will have the utmost legal standing? That if they had split the equity equally among four, and one had done all the work and decided to dispute it, that the court wouldn't look at the case objectively to determine fairness? That's simply not true. So, yeah, I'll stick with my advice: if you're a fledgling startup, don't waste intellectual, physical, emotional and economic resources on your "stake". Earn it. Having a contract will not prevent disputes; I can speak from experience on that. Get to work and build a product. When there is something actually at stake, then worry about your share of it.
  - aneth3 14y ago
    I agree in the beginning - "get to work and build a product." Spending a day or a week on something without having this difficult conversation is not a huge risk, but don't spend months or years. The conversation only gets more difficult and can destroy whatever value is created. > So, yeah, I'll stick with my advice: if you're a fledgling startup, don't waste intellectual, physical, emotional and economic resources on your "stake". Earn it. Having a contract will not prevent disputes; I can speak from experience on that. Get to work and build a product. When there is something actually at stake, then worry about your share of it. I think this is bad advice, and goes against both my personal experience and almost every bit of startup advice on the internet. Sure, you don't need a formal contract, but you do need to make sure you are on the same page equity-wise, while being open to renegotiation. Generally, that "same page" conversation should be documented somewhere, even as a simple email. While that email IS legally relevant and possibly enforceable, the point is to get keep everyone's memory honest and provide clarity. An email thread like: "Based on our conversation, we plan to split this company equally three ways. Is that everyone's understanding?" "Yes, sounds good" "Yep" Can be very helpful to avoid misunderstandings both presently and in the future. The point is not to get into a lawsuit, but to avoid one.
nrser 14y ago
I think your start-up is going to be huge, and I'm willing to help in whatever way possible. to help you out even more, I'll just take a little equity as compensation. but let's not hassle with it now, lets just wait until I can stop your financing or sale with the threat of litigation to figure out how much. it will work out great, promise :)
- tatsuke95 14y ago
  >"lets just wait until I can stop your financing" It's not just my financing; it's your financing as well. I suppose you're more than welcome to have a stake in something worth nothing, of your own volition. >"but let's not hassle with it now" You're going to have a hell of time proving your case then, aren't you? Unless, of course, you can prove to the arbiter that you've done the work that is deemed sufficient for the stake you're claiming you deserve. In which case, I guess I shouldn't really have an issue giving you that share. Working as intended? I'll throw one at you: we agree you take a "little equity", say, 2%. You do an assload of work for me, and I imply on occasion that I'll up your stake, but never actually do. Then I sell the company for billions. You're going to be pretty happy that you just might have a case that you deserve more than you got, in spite of our contract.
  - tomkarlo 14y ago
    "You're going to have a hell of time proving your case then, aren't you?" It's the obligation of the company, not the contractor/employee, to show that it has secured the rights to the work that is included their product. If you have someone work on your product, and you don't put down in writing what their agreed upon compensation is (and/or you don't pay that compensation), you're not going to be in a good spot when someone starts doing due diligence for a financing or a sale. Not being explicit about ownership / comp before a financing deal is on the table is a recipe for heartache.
  - nrser 14y ago
    something makes me think you haven't been through this sort of thing. hint: it's the "proving your case" part. in this scenario, the parties rarely go to trial or arbitration. i don't really need a basis for a case, just a basis for a threat. 'rattling the sabres', so to speak. it's sad, but true.

ColinWright 14y ago

> Work with people you like and trust, and focus on > building a product, not on what your "stake" is. Sounds great, until there's money involved, and people have different opinions about what their holding should be. Shares and equity is the proper way of keeping up front and above board everyone's understanding of who owns what. > We have laws in this country to prevent people > from getting screwed. Take it to court and only the lawyers win. > It was only through the honesty of these other > co-founders that they were able to steer away from > real trouble. No, it was working with people they like and trust, as you advocate, and having formal agreements about who owned what, that enabled them to understand the position and negotiate openly and cleanly. > Those co-founders could have given up nothing > had they so chosen. Correct. Imagine, then, how much messier it would have been had those co-founders claimed that they owned 30% each.

aneth3 14y ago

> We have laws in this country to prevent people from getting screwed. Work with people you like and trust, and focus on building a product, not on what your "stake" is. The most important reason to negotiate equity early is not to avoid people getting screwed, but to avoid fundamental equity disagreements from screwing everyone. Even if you like and trust someone, this does not mean you have compatible beliefs on equity or vesting. If founder B joins founder A, and they move forward with founder A's idea, it's quite possible that years later, when they decide to raise money, founder A will insist that he deserves 90% of the equity, while founder B will want 40%. You'd also be surprised how much people's attitudes and allegiances can change when heavy hitters enter the picture and large amounts of money are at stake. Laws will not prevent you from getting screwed if you don't have any contractually established rights. If you sign an assignment of IP for your work to a company, you can't later sue for equity to avoid getting "screwed."

tatsuke95 14y ago
This is incredible to me. I suppose we'll just have to disagree. I'm not saying to never take care of this. But you don't end up in a Facebook-like dispute overnight. If the very first thing your company (and I use the term loosely) does after thinking of an idea is have an equity contract written up, you're doing something wrong. How do you even determine who gets what? You'd be amending it every day. >"If you sign an assignment of IP for your work to a company, you can't later sue for equity to avoid getting "screwed." You most certainly can. But you will lose, because IP assignment is clearly defined. Equity in a business with no IP, no assets and no income, before any work is done, is not. I've done government procurement in the construction industry. I understand the value and importance of contracts. You guys are talking like this is a multi-million dollar enterprise undergoing a complicated equity dispute. It's not. It was four young guys (sexist assumption!) in a dorm room with an idea. There was no business, and not a single dollar (as far as I can tell) was made based on that idea. They complicated the situation themselves. You are cynical about the legal industry, yet you think that whatever these guys scribbled down on a piece of paper with regards to an equity split, even if notarized, will have the utmost legal standing? That if they had split the equity equally among four, and one had done all the work and decided to dispute it, that the court wouldn't look at the case objectively to determine fairness? That's simply not true. So, yeah, I'll stick with my advice: if you're a fledgling startup, don't waste intellectual, physical, emotional and economic resources on your "stake". Earn it. Having a contract will not prevent disputes; I can speak from experience on that. Get to work and build a product. When there is something actually at stake, then worry about your share of it.
- aneth3 14y ago
  I agree in the beginning - "get to work and build a product." Spending a day or a week on something without having this difficult conversation is not a huge risk, but don't spend months or years. The conversation only gets more difficult and can destroy whatever value is created. > So, yeah, I'll stick with my advice: if you're a fledgling startup, don't waste intellectual, physical, emotional and economic resources on your "stake". Earn it. Having a contract will not prevent disputes; I can speak from experience on that. Get to work and build a product. When there is something actually at stake, then worry about your share of it. I think this is bad advice, and goes against both my personal experience and almost every bit of startup advice on the internet. Sure, you don't need a formal contract, but you do need to make sure you are on the same page equity-wise, while being open to renegotiation. Generally, that "same page" conversation should be documented somewhere, even as a simple email. While that email IS legally relevant and possibly enforceable, the point is to get keep everyone's memory honest and provide clarity. An email thread like: "Based on our conversation, we plan to split this company equally three ways. Is that everyone's understanding?" "Yes, sounds good" "Yep" Can be very helpful to avoid misunderstandings both presently and in the future. The point is not to get into a lawsuit, but to avoid one.

nrser 14y ago

I think your start-up is going to be huge, and I'm willing to help in whatever way possible. to help you out even more, I'll just take a little equity as compensation. but let's not hassle with it now, lets just wait until I can stop your financing or sale with the threat of litigation to figure out how much. it will work out great, promise :)

tatsuke95 14y ago
>"lets just wait until I can stop your financing" It's not just my financing; it's your financing as well. I suppose you're more than welcome to have a stake in something worth nothing, of your own volition. >"but let's not hassle with it now" You're going to have a hell of time proving your case then, aren't you? Unless, of course, you can prove to the arbiter that you've done the work that is deemed sufficient for the stake you're claiming you deserve. In which case, I guess I shouldn't really have an issue giving you that share. Working as intended? I'll throw one at you: we agree you take a "little equity", say, 2%. You do an assload of work for me, and I imply on occasion that I'll up your stake, but never actually do. Then I sell the company for billions. You're going to be pretty happy that you just might have a case that you deserve more than you got, in spite of our contract.
- tomkarlo 14y ago
  "You're going to have a hell of time proving your case then, aren't you?" It's the obligation of the company, not the contractor/employee, to show that it has secured the rights to the work that is included their product. If you have someone work on your product, and you don't put down in writing what their agreed upon compensation is (and/or you don't pay that compensation), you're not going to be in a good spot when someone starts doing due diligence for a financing or a sale. Not being explicit about ownership / comp before a financing deal is on the table is a recipe for heartache.
- nrser 14y ago
  something makes me think you haven't been through this sort of thing. hint: it's the "proving your case" part. in this scenario, the parties rarely go to trial or arbitration. i don't really need a basis for a case, just a basis for a threat. 'rattling the sabres', so to speak. it's sad, but true.