Ask HN: How to decide a late joining co-founder's equity share

2 points by jaxomlotus 3 years ago | 1 comment

I have seen the YC videos that say prevailing wisdom calls for 50/50 equity split among founders and I understand the rationality for it, but I still have some questions in cases of late stage joins.

Obviously every scenario is different...

What about a scenario where one co-founder worked for a year without a salary, built the product, built a team, and raised a significant pre-seed over the course of Year 2?

If a co-founder is brought into the business now at this stage, what would be an equitable way to approach the relationship that is as fair as possible to all parties involved?

Something about 50/50 in that scenario feels inequitable to me in principle. I have seen a suggestion that keep 50/50 but vesting schedules should handle this, but I think that doesn't really account for things properly either. I think you should want all co-founders on the same vesting schedule to keep their interests aligned.

I have been thinking instead about the following scenario:

* Whatever has vested, stays vested with the original co-founder.

* The remainder goes into a founder pool and is divided equally by all parties moving forward.

* The 4 year clock resets for all parties involved at that point (but with no cliff for the original parties).

Does this seem equitable? It seems like a good balance of reward, not taking away any equity that was already earned, and making sure that folks are aligned based on their current position in the business / moving forward.

I welcome feedback, especially from anyone who has been in a similar position.

psyklic 3 years ago |

There are a number of possible ways to approach it. Based on the description, you seem justified in getting more than 50/50 equity. But it may not be as "late stage" as you imagine.

For example, your description is very product-focused. I wonder whether there are users/customers? Revenue? Product/market fit? If I were a potential co-founder, lacking these would indicate it is still very early/"risky". If these are not present even after 1-2 years of work, perhaps a co-founder is 100% necessary to accelerate its growth.

Another aspect is whether the co-founder (and yourself) will be paid a market salary via the "pre-seed". If so, that could justify less equity. Or the opposite -- if you're paid more, that could more palatably justify a more even split!

Ultimately, I would just be honest and upfront with your potential co-founder about it. As long as you are both on the same page and believe it's fair, that is what matters most.