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Business co-founders in tech startups are less valuable than they think

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Re: Business co-founders in tech startups are less valuable than they think

#61

Post by slt2021 »

pier25 wrote: post #56
dgs_sgd wrote: post #8

I recently walked away from a potential startup because my non-technical partner (MBA ideas guy) wanted an 80/20 equity split in his favor. I was the first to broach the discussion and proposed 50/50. It was a severe misalignment in expectations, and this was after 3 months of meeting regularly to refine the idea and build out prototypes (read: I was building the prototypes). My advice is to have this conversation wi…

> wanted an 80/20 equity split in his favor. If they're so confident in their value they should just find some money and pay for the development of the product to a freelancer or employee.

they are so confident they are offering to pay with 20% of equity (basically vapor), instead of hard cash.

imagine the chutzpah

Re: Business co-founders in tech startups are less valuable than they think

#62

Post by inglor_cz »

ElevenLathe wrote: post #30
eezurr wrote: post #23

Earlier quoted context omitted.

Hmm, if it were me, I would have asked how his 80% share would have made my 20% a good investment [than all the other options]. It's all about what each of you are bring to the table. It's possible he priced the tech side perfectly AND being the best option available to make you better off.

You're of course right in a game-theoretic sense but I would never start a business with somebody who thinks like this.

If that person was someone like Warren Buffet, e.g. with a massive track of success behind them, then why not. 20 per cent of a billion is a lot more than 50 per cent of a million.

But for random nobodies who think high of themselves, hell no.

Re: Business co-founders in tech startups are less valuable than they think

#63

Post by throwup238 »

randysalami wrote: post #34
lucasyvas wrote: post #28

Earlier quoted context omitted.

There’s zero chance this would ever be a fair split. They know nothing about building technology so are never in the right. This happens often enough that most startup accelerators pre-flag it as criteria to not invest in founders (with an out of balance equity split).

Maybe he has privilege and lots of connections? Some people have doors open for them just because of who they are and there is value in that.

Then why do they need to give the technical co-founder 20%, or even make him a co-founder at all? They either have enough privilege and connection that they can bring in serious funding from investors, future clients, or friends/family/fools, - or they don't and their privilege and connections aren't really worth that much. If they did, they'd much rather give them a few percentage points and pay them a salary, capturing all the upside.

It's a broad over-generalization but it's a good rule of thumb. They must have access to demonstrable money and/or power before they're worth an 80/20 split, well above what most random business guys can bring in from even elite universities.

Edit: A decent somewhat recent example is Theranos. No biotech VC would touch them because they do due diligence on the basic scientific viability of their investments, but Holmes and her cofounder were able to bring in huge tech investors from family connection and even get people like Henry Kissinger on their board, who also helped them get more investors. That's the kind of connections that might be worth an uneven split.

Re: Business co-founders in tech startups are less valuable than they think

#64

Post by slt2021 »

dgs_sgd wrote: post #45
JumpCrisscross wrote: post #29

Earlier quoted context omitted.

Unless someone is putting cash on the table, or one partner is full time and the other is not, there is zero reason not to split founder interests equitably. (Even in the cash state, the better play is vesting, not an unequal split out of the gate.) If you want an unequitable split, hire an employee. If you can’t (or won’t), you’re not the hot shit you think you are.

> Unless someone is putting cash on the table, or one partner is full time and the other is not, there is zero reason not to split founder interests equitably. When he asked why I thought 50/50 was fair, this pretty much sums up what I said. I'd be happy to take an 80/20 split with an industry insider or celebrity, someone who's guaranteed to attract buzz and attention. But he wasn't that guy.

should just ask him: what do you think stops me from taking your idea and implementing it myself? I will hire another MBA type of guy for 20% equity to do the work you wanted to do and keep the 80% to myself.

flip the negotiating table

Re: Business co-founders in tech startups are less valuable than they think

#65

Post by fellowniusmonk »

neilv wrote: post #48

One thing I've wondered about for awhile: How do you find a business co-founder you can trust? For one example, the article says that some of the best value that a business co-founder can contribute is disproportionately building the relationships. But those relationships can be more connected to the business cofounder themself, than to the company. It's a bit different for the technical co-founder, since your percep…

If you are the technical co-founder who is writing code you should ensure you have legal protections before anyone else has access to what you have written.

This can be a legal agreement or built in protections via copyright law.

Same as any author who produces work that others can profit off of in perpetuity, don't sign your built in protections away.

Re: Business co-founders in tech startups are less valuable than they think

#66

Post by randysalami »

mountainriver wrote: post #57
_bin_ wrote: post #35

Earlier quoted context omitted.

Very typical. I've run into cases where an "idea guy" basically says "you do all the product and tech half, I'll do marketing and strategy." Which is dumb, because sometimes I'm legitimately better at the strategy half too. Generally these people want ridiculous equity splits of that nature. It's worth anyone technical's time to build skills in strategy, marketing, finance, etc. The technical co-founder always gets s…

It’s funny how many people think their ideas are truly brilliant and warrant a massive amount of respect. Anyone who’s worked as an engineer for awhile knows that ideas are a dime a dozen, they are rarely unique, and are about a millionth of what needs to be done to succeed

What is needed in your opinion?

EDIT: I say this as an engineer who is putting his notice in tomorrow to found a startup

EDIT EDIT: Thanks guy, this is along the lines I'm thinking. I'll be competing with companies like Asana, Monday.com, and ClickUp. I worked in a consulting environment for two years and these tools could never be adopted despite the org size growing to 1000+ people in my larger team. It was a big pain point and I think I've built a solution that will help big time.

Re: Business co-founders in tech startups are less valuable than they think

#67

Post by spamizbad »

dgs_sgd wrote: post #8

I recently walked away from a potential startup because my non-technical partner (MBA ideas guy) wanted an 80/20 equity split in his favor. I was the first to broach the discussion and proposed 50/50. It was a severe misalignment in expectations, and this was after 3 months of meeting regularly to refine the idea and build out prototypes (read: I was building the prototypes). My advice is to have this conversation wi…

Yeah never take anything less than a 50/50 split. During the initial fundraising rounds (seed, Series A and maybe even into B) you're also going to be doing just as much lifting trying to get a deal done while also doing your regular day-to-day engineering responsibilities. Maybe in a world where it's 3 founders you can side-step this responsibility but at point you're not just the CTO you're also the de facto COO while your partners are trying to get a deal done.

Re: Business co-founders in tech startups are less valuable than they think

#68

Post by _bin_ »

JumpCrisscross wrote: post #41
_bin_ wrote: post #35

Earlier quoted context omitted.

Very typical. I've run into cases where an "idea guy" basically says "you do all the product and tech half, I'll do marketing and strategy." Which is dumb, because sometimes I'm legitimately better at the strategy half too. Generally these people want ridiculous equity splits of that nature. It's worth anyone technical's time to build skills in strategy, marketing, finance, etc. The technical co-founder always gets s…

> worth anyone technical's time to build skills in strategy, marketing, finance, etc. This leads to jack-of-all-trades types. Good non-technical folk exist. They’re just not easy to find for obvious reasons (same as good technical founders who can see the forest for the trees). A good technical founder dilutes their comparative advantage e.g. negotiating with suppliers and prioritising payments ahead of a close.

It can, to be sure, and it's not ideal. But the perception that technical co-founders typically get gypped hard is very warranted. This is a thing where you can often still get a reasonably good result with a technical co-founder, not as good as were he solely focused on product/tech stuff, but enough that his individual outcome may be higher than letting the biz guys run it.

Obviously good biz guys somewhat mitigate this but finding those is easier said than done.

Re: Business co-founders in tech startups are less valuable than they think

#70

Post by neilv »

JumpCrisscross wrote: post #51
neilv wrote: post #48

One thing I've wondered about for awhile: How do you find a business co-founder you can trust? For one example, the article says that some of the best value that a business co-founder can contribute is disproportionately building the relationships. But those relationships can be more connected to the business cofounder themself, than to the company. It's a bit different for the technical co-founder, since your percep…

Anyone can do a back room deal to screw their partners. Mark Zuckerberg was a technical founder, for example.

Maybe, although students in the dotcom boom was a different situation than now.

(Source: Was one. Many people were trying to fund you, sometimes without you even asking. And you couldn't go to a student party without some Sloan or HBS student zeroing in on you, and wanting to talk with you.)

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