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Ask HN: How to split equity

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Re: Ask HN: How to split equity

#21

Post by petervandijck »

DevX101 wrote: post #13
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 par…

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. What would an example of a clearly defined milestone be?

Re: Ask HN: How to split equity

#22

Post by clistctrl »

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…

Thanks, this kind of rings to the first thoughts I had.

Re: Ask HN: How to split equity

#24

Post by michael_dorfman »

petervandijck wrote: post #19
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.

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.

We're talking pre-launch here. From the sounds of it, the value created thus far is negligible in the larger scheme of things.

Re: Ask HN: How to split equity

#25

Post by michael_dorfman »

petervandijck wrote: post #18
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.

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 l…

Re-read the question. It is early. The code hasn't been written. The risk is still astronomical.

Re: Ask HN: How to split equity

#26

Post by petervandijck »

erikstarck wrote: post #17

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.

I don't think that's good advice.

Re: Ask HN: How to split equity

#27

Post by tptacek »

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.

Actually: while I think the "person B hasn't done much real work yet" logic doesn't really work, joining later definitely is relevant to your equity. Person C is taking less risk than A and B; A and B need to be compensated for that.

Re: Ask HN: How to split equity

#28

Post by tptacek »

This has to be one of the most frequently asked questions on HN.

It may help to consider carefully all the reasons you give equity:

* To repay effort (like, doing all the up-front coding)

* To compensate for risk (taking a job with an uncertain future)

* To compensate for financial investment in the company

* To incentivize future effort and risk-taking

* To delineate control of the company

* To access valuable tangible/intangible assets held by other people (such as a network of contacts in your problem domain, or a valuable endorsement)

Make sure you're not just thinking about equity in simple terms. You can sabotage your team by creating even superficial imbalances. You might think, "I'm doing all the coding up front, so I should get more equity because I'm valuable on day 1". Maybe that's true. But it might also be true that your partner took the same amount of risk as you, got less equity, and now also has a reason to blame you for every setback on the business side, because you delivered crappy code that prevented him from realizing his equity stake.

This is an absolutely utterly basic problem in comp package design, something that anyone who has ever hired a salesperson will tell you right off the bat. In the context of comp plans, if a conflict can happen, it will happen. Make sure your fiddley equity plan is worth the effort.

Remember, if your business is unsuccessful, 60% of 0 is 0. If your business is successful, you'll have other levers to pull besides day 1 equity grants to portion out upside.

(I personally wouldn't allocate a single share based on someone's supposed ability to land funding, though. Assume you won't get funded.)

Re: Ask HN: How to split equity

#30

Post by erikstarck »

petervandijck wrote: post #26
erikstarck wrote: post #17

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.

I don't think that's good advice.

Why not?
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