Ask HN: How much equity should I ask for?

#1

Post by throwaway408 » Wed, Jun 08, 2011, 9:12 PM UTC

Hello all. I'm a much more active HN-user using a throwaway account to ask an anonymous question.

I'm about to go start a venture with a partner and was wondering about equity.

Here's the backstory:

It's his idea and he has already programmed 70% of a working prototype. The idea was submitted and accepted at a YC-like (but not YC) accelerator...and will thus receive a good amount of funding.

Through mutual contacts, they reached out to me as he needed more tech talent and help. I'm an experienced developer and have created a few cool projects in the past. Obviously, it's a great idea in a very early stage and the more people we have working on it the better. Not to mention the whole focus on co-founders performing better.

We've met and talked about the idea and I'm likely going to come on board as a co-founder just a couple of weeks before the program begins, with the approval of both the original founder and the program directors.

It all sounds great but I wanted some expert opinions (maybe even people who have gone through YC or TechStars, etc) as to how equity is supposed to work out.

Right now, he wants me to take 10%. Most of the people I've talked to believe I should ask for more. But assuming that's correct, what's "more"? Is it 15, 20, 40, 50? Should I just accept this? What worries me is that the real work and development will occur during this program. Even with the prototype, it's unlikely that I'll only put in 10% of the total effort.

I honestly don't know what to do. Any tips?

[edit] - Not getting any compensation but equity. No salary.

Re: Ask HN: How much equity should I ask for?

#2

Post by jcol » Wed, Jun 08, 2011, 9:23 PM UTC

Building the prototype is the easy part. If you're going to do 40% of the work, ask for 40% of the equity. This is assuming he has no revenue, no customers, and no other partners. Being accepted into an accelerator program doesn't make this a guaranteed success and even that 40% could end up being worth $0.

Re: Ask HN: How much equity should I ask for?

#3

Post by eggbrain » Wed, Jun 08, 2011, 9:23 PM UTC

For me, I would say > 20% would be a "co-founder" status. Anything less and it sounds like you are more an employee than anything else.

It may be his idea, he may have even created the prototype, but a prototype is not a final product. If you have to trash the prototype and work from scratch, you'll be putting a lot of work into something that is barely yours.

I wouldn't, however, ask for >30%. If he's gotten into an accelerator and programmed a prototype, he's probably been working on the project for quite some time (a year or more). To ask for almost half of the equity would probably be too much.

Re: Ask HN: How much equity should I ask for?

#4

Post by maxdemarzi » Wed, Jun 08, 2011, 9:29 PM UTC

These kinds of questions are easy to answer if you put yourself in the other persons shoes.

I came up with the idea, I coded it, and I got in to an accelerator. Now a good engineer wants half? No way. I climbed part of the hill without him, I could just keep going.

I can hire him 6 months from now after the series A, and get him for 1% as a lead developer. I'll offer him 10% to come on board now, because accelerators are intense and I could use the help.

--

If you're not going to be happy with 10%, ask for 20% and call it done. Start-ups are (mostly) bimodal, you'll make a shit ton of money or you won't make a dime. Worrying about a few % points just isn't worth it. Just get enough to feel good and get ready to work.

Re: Ask HN: How much equity should I ask for?

#5

Post by gstar » Wed, Jun 08, 2011, 9:32 PM UTC

If 70% of the project is complete, and they have been accepted to an accelerator - then 10% is very fair, maybe even a little bit too fair.

Your cofounder has created an immense amount of value already - seems to me you're getting a pretty good deal - grab it with both hands.

Re: Ask HN: How much equity should I ask for?

#6

Post by Silhouette » Wed, Jun 08, 2011, 9:35 PM UTC

It's hard to answer questions like this without knowing more of the back story and the other terms, but presumably you're not in a position to disclose those without compromising your anonymity.

That said, it sounds like he's got the idea, most of a working prototype, and started to secure outside funding. That means joining the venture is significantly less risky for you than it would be if you were coming in before the technology was proven and when you had to put up significant amounts of your own cash to co-fund the early days.

I think that means the two big questions are whether you have something unique/personal to offer that it would be hard to find elsewhere, and how much you're getting compensated aside from the equity.

If you could be replaced by someone else with a similar skill set and you're being paid a decent salary on top of the equity, then you're really more like employee #1 than a co-founder, and I'd say you were probably doing well to get 10%. (10% of what, by the way, if outside investment is already involved in some form?)

On the other hand, if you have particularly relevant skills or insights that would be hard to replace and you're being asked to work primarily for equity in the early days, then you're more like a co-founder even if you're not co-funding at this stage. Now it's down to the proportion of the work to make the business a success that will be down to you, and if you think that's more than 10%, you should probably look for more than 10% in equity as well.

Just MHO, and based more on second-hand anecdotes than personal experience since none of my companies have been in a directly comparable position, so take with liberal salt sprinklings...

Re: Ask HN: How much equity should I ask for?

#7

Post by petervandijck » Wed, Jun 08, 2011, 10:00 PM UTC

For 10%, he's looking for an employee, not a co-founder.

That's not necessarily bad. Will you be taking a salary?

Also, how much does he own?

Re: Ask HN: How much equity should I ask for?

#8

Post by petervandijck » Wed, Jun 08, 2011, 10:02 PM UTC

gstar wrote: post #5

If 70% of the project is complete, and they have been accepted to an accelerator - then 10% is very fair, maybe even a little bit too fair. Your cofounder has created an immense amount of value already - seems to me you're getting a pretty good deal - grab it with both hands.

70% of the work isn't done, 70% of a prototype is done. 99% of the work is still ahead of them.

Re: Ask HN: How much equity should I ask for?

#9

Post by swalkergibson » Thu, Jun 09, 2011, 12:30 AM UTC

With zero salary, I would say you need to get more equity. A working prototype is pretty amorphous, is it version 0.01? Like others have said, the accelerator is theoretically where a lot of the work will be done, so he is asking for quite a bit out of you. I would ask for 20%, and see what his response is.