Ask HN: As a co-founder, should development of minimum viable product be free?

9 points by supervillain 11 years ago | 7 comments

I have an agreement that states that when a working product is available, I'm entitled of shares as a co-founder, depending of how much investment we have.

However, due to my hopes of being compensated in the future upon creation of the product, my co-founder expects me to create the product for free for several months. Currently I have a good full-time job, a father and have a family to feed.

Can someone help me clear things out on my side and also that I can communicate to my co-founder.

bbcbasic 11 years ago |

I will echo what I heard on startupclass.samaltman.com, which I think is a very good source of information. I suggest you watch the series.

Basically a good foundation for a startup is the initial partners (ideally 2 or 3 people) get equal equity at the beginning. Any other arrangement would raise eyebrows as to whether all the parties are committed and trust each other.

It sounds like you only get your shares if you work hard and you get lucky, whereas the other people get shares by default. Also "when a working product is available" isn't watertight and is open to interpretation.

With the limited information available I would think the best option is to walk away. Look after your family.

-- Disclaimer: I have no experience in working for or starting a 'startup'.

curiousgeorge 11 years ago |

Complex initial agreements are a bad sign and suggest a lack of proper focus on how to achieve growth and share success. But if you are getting pushed in this direction, make sure the same agreement (ownership reflects performance) applies to non-technical founders as well. Document the obligations of your cofounders while you build the product, and establish ways to determine if they have met their goals. The point is not to be the only member of the founding team held to performance standards.

If the company cannot move forward until a technical product exists, you are investing in the company at a much earlier and riskier stage, since in addition to bearing product risk (will it work) and market risk (will it sell), you are also holding team risk (are your cofounders productive) and legal risk (if they bail, will you be sued for salvaging your investment as necessary).

Higher risk should translate into higher pay/equity. Don't let anyone negotiate your ownership down on any basis other than that their own disproportionately large contribution to the company (i.e. cash investment).

mtmail 11 years ago |

I've done a 50/50 (well 49.9%/50.1%) unpaid deal once with a non-technical co-founder on a side-project. The product (website) was a key piece of course but while I started coding I gave my co-worker tasks, too. E.g. logo design, project plan, research.

Worked great for two months. He was waiting for a finished product but I still gave him tasks: write complete help pages, full FAQ, marketing plan, list of bloggers to contact after launch. I waited 6-8 weeks and got various excuses. At that point it was better to end the deal early.

What I'm saying is: make sure the co-founder is actually putting in time. He/she can't just wait for a (almost) finished product to sell. Basically make him/her work hard (with goals and deadlines and everything) for your engineering time. If he/she doesn't doesn't put in time then you might see the same low time commitment when it comes to fund raising, marketing or PR later.

saluki 11 years ago |

It's typical to not receive compensation till the company is profitable and or funded.

Typically a 50/50 split is recommended between the technical and marketing/idea guy co-founder straight away.

You'll both have to do lots of work to make this a success.

It's risky for both of you to end up putting in a lot of work and end up with a cofounder not holding up their end of the bargain.

I'd recommend setting up the 50/50 split up front and then have a clause that if either of you are not actively working on building the company they surrender 50% of your share to use that equity to plug in a new marketing/dev person to pick up the slack.

It's all in the execution, hard work to make this a success. If you and your co-founder don't trust each other at this point it might be a sign he'll be hard to work with. Typically this early it's all roses and excitement. Maybe you are just getting to know each other though. The ventures I've set off on I typically go with a 50/50 or 51/49 split from the start.

As far as family goes. I expect you're keeping your good full time job and doing this on nights and weekends. Make sure you document that all development is done on your free time and that there aren't any clauses in your contract that would lead your company to believe they own any development you do on your own time. You don't have to alert them to what you are doing but it might be a good time to read anything you've signed.

Remember Ideas are the easy part and make sure this is a good idea that you want to spend a few months seeing your family less to invest your time in.

Remember keep your MVP simple, just develop the minimum amount possible so it's providing 'value' to signups. If the two of you can manually do steps/processes behind the scenes initially do that, automate processes later once you're growing and scaling.

Check out StartUpsForTheRestOfUs.com lots of great information relating to your situation and startups in general.

Good luck in 2015.

wmf 11 years ago |

The conventional and formal way to handle equity includes a vesting cliff and a shotgun clause. The result would be essentially what you describe, but be sure to have it in writing. Hire your own lawyer if necessary.

logn 11 years ago | |

That's what I'd think.

OP, given the current plan, why not keep the copyright in your name until they let you join the company, at which point you can assign it to the company.

symbion 11 years ago |

Well, if he is also working for free, then it is "reasonable". If he is not, then why should you ? Unless the reward/risk ratio is very good for you.