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Ask HN: How to split equity

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Re: Ask HN: How to split equity

#11

Post by petervandijck »

petervandijck wrote: post #6

It seems to me that you are the most important person in this company (because you do most of the work right now, and because of your comment that "PersonB's importance will probably be greater in the future" and "I just handed this task to person B"). If you're handing tasks to people, you're the boss. 1/3 each does NOT seem fair. To be honest, I don't understand why you are getting person B involved at all, give th…

Think about it like this: every day, the risk of your company is (hopefully) going down. Every line of code you write, every action you take, should help with that. So every day that passes, when someone new joins, they will get less equity because they are taking less risk. More of the work is already done.

Re: Ask HN: How to split equity

#12

Post by petervandijck »

trevelyan wrote: post #8

Reality check... you just gave B the job of deciding how much equity he should have while you're busy doing the actual work of starting the company. That's like paying someone to pick your pocket. If you don't know how much these people are worth, it is probably because they aren't doing work that is of any tangible value to the company yet. Sure... they'll be invaluable to the company in the future. Everyone is. But…

Amen to that reality check.

The more I read this, the more I think you're shooting yourself in the foot with this setup.

Re: Ask HN: How to split equity

#13

Post by DevX101 »

trevelyan wrote: post #8

Reality check... you just gave B the job of deciding how much equity he should have while you're busy doing the actual work of starting the company. That's like paying someone to pick your pocket. If you don't know how much these people are worth, it is probably because they aren't doing work that is of any tangible value to the company yet. Sure... they'll be invaluable to the company in the future. Everyone is. But…

"link their vesting to hitting those clearly-defined milestones"

Great advice here. If I bring on a business guy who claims he can land the first 10 major accounts that will be critical for the business, that's all well and good. But unless he's a proven rainmaker I wouldn't give up equity unless it's vested to hitting these key milestones.

And by the way, don't put this off as a "task" to your secondary business partner. Both of you need to sit at the table and discuss.

Re: Ask HN: How to split equity

#14

Post by michael_dorfman »

petervandijck wrote: post #10
michael_dorfman wrote: post #2

There's no magic formula here: the objective is to estimate the contribution each of you will have to the success of the company over the next stretch of time. Is there any immediately compelling reason why 1/3rd each isn't fair?

Because person B hasn't done much yet, and because person C is joining later than the original founder(s).

"Done much yet" and "joined later" don't really matter much, in my book-- as I said, the question is, when we look back at some future point (say, a year or two from now) and total up all of the contributions, how much value did each person provide?

Clearly, person A has contributed the most so far. That doesn't mean that the trend will continue that way.

Re: Ask HN: How to split equity

#15

Post by generalk »

michael_dorfman wrote: post #14
petervandijck wrote: post #10

Earlier quoted context omitted.

Because person B hasn't done much yet, and because person C is joining later than the original founder(s).

"Done much yet" and "joined later" don't really matter much, in my book-- as I said, the question is, when we look back at some future point (say, a year or two from now) and total up all of the contributions, how much value did each person provide? Clearly, person A has contributed the most so far. That doesn't mean that the trend will continue that way.

You don't assign equity based on work that isn't done. That's asking for trouble, unless the person has a huge track record of doing the type of work you have them doing.

Vesting is key here. I'm not the first to say it, but setting up key milestones and vesting based on their successful (and be sure to define "success") completion is the only way to go.

Re: Ask HN: How to split equity

#16

Post by sp4rki »

To be honest to me it seems like you practically giving away a big chunk of your company for free. Person B doesn't seem important at all at this moment, and seems like the relationship is partly based on friendship. Was this a friend you let into your business just because you think you need a cofounder? Person C seems of utmost importance in comparison to Person B, but still seems like she's not required at the moment. I made the same mistake once when I was younger, but luckily everything got thrashed and I started again by myself involving other people only when it was really necessary.

tl;dr: Only add cofounders when you're sure your really need them, and only then assess the risk and their involvement as a measure for equity.

Re: Ask HN: How to split equity

#17

Post by erikstarck »

1. Write down a list of tasks that must be performed to move the company forward.

2. Decide together how many shares each task is worth.

3. When the task is finished, split the shares betweens the founders in a joint session.

Re: Ask HN: How to split equity

#18

Post by petervandijck »

michael_dorfman wrote: post #14
petervandijck wrote: post #10

Earlier quoted context omitted.

Because person B hasn't done much yet, and because person C is joining later than the original founder(s).

"Done much yet" and "joined later" don't really matter much, in my book-- as I said, the question is, when we look back at some future point (say, a year or two from now) and total up all of the contributions, how much value did each person provide? Clearly, person A has contributed the most so far. That doesn't mean that the trend will continue that way.

No. You shouldn't give equity now based on an imaginary look-back from the future, because it is impossible to predict the future, that's my whole point.

PersonB may contribute later, but at that point there will be a lot of existing value already, hence, even if they add more value, the percentage of value they add is less, and the risk they take is a lot less (since there is already value there), hence they get a lot less equity. How early you join makes ALL the difference.

Re: Ask HN: How to split equity

#19

Post by petervandijck »

michael_dorfman wrote: post #14
petervandijck wrote: post #10

Earlier quoted context omitted.

Because person B hasn't done much yet, and because person C is joining later than the original founder(s).

"Done much yet" and "joined later" don't really matter much, in my book-- as I said, the question is, when we look back at some future point (say, a year or two from now) and total up all of the contributions, how much value did each person provide? Clearly, person A has contributed the most so far. That doesn't mean that the trend will continue that way.

So if I join Google today and I come up with another billion dollar income stream for them, I'll get as rich as the founders? No. That's not how it works, sorry.

Re: Ask HN: How to split equity

#20

Post by petervandijck »

generalk wrote: post #15
michael_dorfman wrote: post #14

Earlier quoted context omitted.

"Done much yet" and "joined later" don't really matter much, in my book-- as I said, the question is, when we look back at some future point (say, a year or two from now) and total up all of the contributions, how much value did each person provide? Clearly, person A has contributed the most so far. That doesn't mean that the trend will continue that way.

You don't assign equity based on work that isn't done. That's asking for trouble, unless the person has a huge track record of doing the type of work you have them doing. Vesting is key here. I'm not the first to say it, but setting up key milestones and vesting based on their successful (and be sure to define "success") completion is the only way to go.

Question: I hadn't heard of vesting based on milestones before. Is that really a commonly used option? Since milestones are so hard to predict, and depend on lots of factors, not just the work of that one person..
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