Seth's Blog: Advice on equity
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Seth's Blog: Advice on equity
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Re: Seth's Blog: Advice on equity
#2I 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.
Re: Seth's Blog: Advice on equity
#3Equity 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.
Re: Seth's Blog: Advice on equity
#4> "Today, right now, your contribution is worth 5% of the company and my creation of the company is worth 5%. The other 90% is based on what each of us does over the next 18 months. Here's a list of what has to get done, and what we agree it's worth..."
Otherwise known as vesting (essentially).
Re: Seth's Blog: Advice on equity
#5I just say Geddy and Alex of Rush on "That Metal Show". They attributed part of the reason that the band has survived so long to having skipped any nonsense about "who contributed what and its relative value" to simply splitting everything evenly, three ways.
Re: Seth's Blog: Advice on equity
#6or in other words a vesting schedule, which is how almost all funded startups are structured
SG is over-rated, but lets leave that discussion for another time.
Re: Seth's Blog: Advice on equity
#7I 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.
Re: Seth's Blog: Advice on equity
#8I 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.
Re: Seth's Blog: Advice on equity
#9or in other words a vesting schedule, which is how almost all funded startups are structured SG is over-rated, but lets leave that discussion for another time.
"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 do that would create value: sell a license, or add a feature / improve UI. Because of this I think some variant of Seth's suggestion actually makes sense in this case, albeit choosing a split upfront and then vesting is normally a much more sensible way to go.
Re: Seth's Blog: Advice on equity
#10or in other words a vesting schedule, which is how almost all funded startups are structured SG is over-rated, but lets leave that discussion for another time.
"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). I wouldn't even grant a single share to any founder.
I'm speaking from experience - first two companies I was involved with had co-founders that faded quickly and it took forever to work out the allocations after they eventually left. If you grant somebody stock, it is very hard to get it back.
If you started a thread here on HN about horror stories with stock allocations you would probably hear a thousand stories. Almost every startup has one, even the companies that go on to IPO or big acquisitions.