Seth's Blog: Advice on equity • Hacker News Board

Re: Seth's Blog: Advice on equity

#11

Post by sokoloff » Thu, Mar 19, 2009, 1:03 PM UTC

redhex wrote: post #3

Equity equates to liability if the company folds and incurred debt. Hence all the shares must be defined at the point in time and not only 5% now and then another 5% when X is done.

I think that's wrong on two accounts:

1. True corporate debt dies when the company dies, just as personal debt dies with the person. If someone has signed a personal guarantee on "corporate" debt, that's not the case, of course, but in that event, the shareholders of the company are not obligated to dip into their pocket to satisfy what amounts to personal debt of someone else.

2. If 90% of the shares remain with the company as treasury shares and you and I, as co-founders, each has 5% of the company vested, then our 5% stakes ALSO have a beneficial interest in the proportional share of the treasury shares. In a valueless company, of course that's irrelevant.

Re: Seth's Blog: Advice on equity

#12

Post by ivankirigin » Thu, Mar 19, 2009, 2:01 PM UTC

This doesn't sound like vesting, but a list of milestones to reach before granting the stock. That is a horrible idea.

Re: Seth's Blog: Advice on equity

#13

Post by mkuhn » Thu, Mar 19, 2009, 2:07 PM UTC

nikblack wrote: post #10

Alex3917 wrote: post #9

Earlier quoted context omitted.

"or in other words a vesting schedule, which is how almost all funded startups are structured" FWIW Seth is actually talking about a bootstrapped company and not a venture backed startup. As it stands the software is already complete, and there are maybe ten thousand potential firms who are well-suited to buy licenses. They don't want to grow in any way, so at any given time there are only two things the founders can…

Even if you don't intend to seek funding you should still adopt the same model - there are very good reasons why it is used. Doing an even-split stock grant amongst founders at the formation of a new company is absolutely the worst thing you can do. Almost all company classes allow you to create a stock pool - even if there are only 100 shares. You can then setup vesting schedules for everybody (including employees).…

To solve your problem you could agree that a person has to give back his/her shares if he leaves the company before a certain time has passed (a few years) or if she/he doesn't live up to the expected level of commitment.

Re: Seth's Blog: Advice on equity

#14

Post by abstractbill » Thu, Mar 19, 2009, 2:15 PM UTC

ivankirigin wrote: post #12

This doesn't sound like vesting, but a list of milestones to reach before granting the stock. That is a horrible idea.

Any list of milestones you draw up when you start a company is likely to contain things you mistakenly thought would be important, and omit things that turned out to actually be important. Doesn't sound very workable to me, agreed.

Re: Seth's Blog: Advice on equity

#15

Post by sanj » Thu, Mar 19, 2009, 2:20 PM UTC

Stop arguing about the value of something that doesn't exist and go build it.

Re: Seth's Blog: Advice on equity

#16

Post by coglethorpe » Thu, Mar 19, 2009, 2:25 PM UTC

nikblack wrote: post #10

Alex3917 wrote: post #9

Earlier quoted context omitted.

"or in other words a vesting schedule, which is how almost all funded startups are structured" FWIW Seth is actually talking about a bootstrapped company and not a venture backed startup. As it stands the software is already complete, and there are maybe ten thousand potential firms who are well-suited to buy licenses. They don't want to grow in any way, so at any given time there are only two things the founders can…

Even if you don't intend to seek funding you should still adopt the same model - there are very good reasons why it is used. Doing an even-split stock grant amongst founders at the formation of a new company is absolutely the worst thing you can do. Almost all company classes allow you to create a stock pool - even if there are only 100 shares. You can then setup vesting schedules for everybody (including employees).…

So who "owns" the stock that's in the pool? Suppose a company is purchased before everyone is vested, who get's the cash?

Re: Seth's Blog: Advice on equity

#17

Post by mrtron » Thu, Mar 19, 2009, 2:59 PM UTC

ivankirigin wrote: post #12

This doesn't sound like vesting, but a list of milestones to reach before granting the stock. That is a horrible idea.

It does sound like a bees nest of problems.

I much prefer just splitting 50/50 and having both founders kick as much ass as possible. This does force you to be able to rely on your cofounder, but that is probably is a good idea (and unavoidable) anyways.

Re: Seth's Blog: Advice on equity

#18

Post by ivankirigin » Thu, Mar 19, 2009, 2:59 PM UTC

abstractbill wrote: post #14

ivankirigin wrote: post #12

This doesn't sound like vesting, but a list of milestones to reach before granting the stock. That is a horrible idea.

Any list of milestones you draw up when you start a company is likely to contain things you mistakenly thought would be important, and omit things that turned out to actually be important. Doesn't sound very workable to me, agreed.

Even if things are important, and the person executes well, and that business unit could get crushed by something unforeseen. To align interests, employees should have the whole company in mind, not just their personal goals to get equity.

Re: Seth's Blog: Advice on equity

#19

Post by mattjung » Thu, Mar 19, 2009, 3:02 PM UTC

swombat wrote: post #7

mattjung wrote: post #2

I disagree with Seth. Any discussion about who contributed what and who more may absorb a lot of energy from the startup. Founders starting together should have the same equity because they can expect from each other to give their maximum to drive the success of their company. And they will have the same motivation and interest to give their maximum.

That's a nice idea in theory but it ignores the practical fact that contributions will be different, people's commitment will vary over time, and people's expectations will clash.

There is a study that suggests that equal equity among founders leads to more stable and successful startups: http://founderresearch.blogspot.com/2006/12/equity-split-res...

Re: Seth's Blog: Advice on equity

#20

Post by mattjung » Thu, Mar 19, 2009, 3:13 PM UTC

medianama wrote: post #8

mattjung wrote: post #2

I disagree with Seth. Any discussion about who contributed what and who more may absorb a lot of energy from the startup. Founders starting together should have the same equity because they can expect from each other to give their maximum to drive the success of their company. And they will have the same motivation and interest to give their maximum.

The problem with same equity is that there is no boss. I am not sure if democracy works too well in start ups.

But I am sure that dictatorship will lead directly to failure ;) Conflicts between founders must be resolved by good arguments not by outvoting...