Ask HN: Adding A Partner To A Bootstrapped Startup

3 points by jtesp 13 years ago | 4 comments

A couple years ago in the beginning I had a partner... he got married, had a baby & stepped away so I took full ownership. I kept going, bootstrapped and eventually got it off the ground and am currently generating a bit of income. Problem is I'm wearing too many hats and can't grow. Not only is it very stressful doing it alone, it's at the point where it makes no business sense because it can't grow.

I could afford to hire a developer part time, but I really want somebody on the team who's passionate about building something that is theirs. Also, I want another brain to help in all areas of the business, come up with ideas, provide camaraderie and support.

Perceived valuation is currently $1M - $1.2M

I've known a particular candidate for about 6 months and we get along well, I have trust in his abilities, and have an overall good feeling about him. I presented the idea and he expressed interest but couldn't come on full time without pay. I don't really need full-time right now anyway so that's ok. I'm thinking paying a reduced hourly rate (or no pay) and he can build some sweat equity. Does a "working interview" make sense in this situation? Where he "earns" his equity over the course of a 3-6 months through actual work and proof? The tricky part is coming up with the numbers. Any advice greatly appreciated here.

I'm curious about the different scenarios and approaches that can be taken. Also, some do's and dont's and what precautionary measures to take would be greatly appreciated.

Thanks!

mchannon 13 years ago |

If you agree on terms, put them down in writing (especially contingencies like one of you dies, quits, or stops working hard), and have both of you sign it.

There is often a brief honeymoon period where people put aside grudges that simultaneously build up; part-time pay to help a friend out is much easier to justify at first but what are your plans 2 months out? 6 months out?. If your candidate loses their day job what then? If they feel helping you puts their day job at risk what then? What if they suddenly decide they are worth more than their initial equity schedule? These need to be agreed upon in advance, because people's senses of fairness oft go out the window when there's an income and survival involved.

bsims 13 years ago |

It is fairly common to have vesting schedules as someone earns equity of usually 3 to 4 years. So if for example you were giving up 10% total on a 4 year vesting schedule, each year would earn 2.5% of the 10%. Some of these can also be met with milestones.

I think your approach of bringing him on slowly makes sense from what you wrote. I recommend reading "The Founder's Dilemma," before finalizing any of your actions.

http://www.amazon.com/The-Founders-Dilemmas-Anticipating-Ent...

brudgers 13 years ago |

Simple question.

Will a partner allow the business to grow to $5 million dollars in "percieved" value?

If yes, then giving the partner half the business more than doubles your "on paper" money.

If no, then why bother? Or rather, why bother trying to grow something that won't grow quickly in lieu of starting something together or pivoting which might?

Regardless, any equity should vest over time.

Regardless as well, hourly sweat equity is not conducive to creating determination in your partner.

jtesp 13 years ago |

Thanks guys! I think I may do a milestone based method. Each milestone reached will earn him X% equity. That way he can earn his way in and the risk is low for me.