I’m working on a startup with a partner, and we’re struggling to figure out how to divide equity. We are very early stage and have not launched yet.
I am a software developer (technical cofounder), and my partner is handling the business side of things (non technical cofounder). We’re both working part time on this venture because we’re both still in college.
Normally, the advice is roughly 50/50 vested over 4 years. The complication is that after next August, I will be working at a company that disallows working on side-businesses. The job I am taking in August is with an established company for 120K/year before benefits. I’m nearly certain I will have to leave our startup because I’m not willing to risk my job (and the benefits of having a high paying job this early in life) for this venture.
I’ve got a fairly significant technical background (internships, lots of experience in open source outside of school), and I’ve already built out an MVP (NextJS app) that I have not signed away IP rights to. My nontechnical cofounder has drive and motivation, but he does not have any prior sales/marketing experience, and he does not have any industry connections we’re relying on. My non technical cofounder came up with the idea. He has also helped build a waitlist and gathered data about our target demographic. I do believe that if we had more time together, this venture would be successful.
My partner suggested that I take 3% fully vested once I leave in August. I think this is a low offer given that I have written an entire working app already. My partner offered this amount after seeking advice from VC advisors that are potential future investors (even though I don’t think we will need investment because this business is 100% bootstrappable). He made a second offer for a profit sharing agreement that terminates after I have earned $2K (also a bad offer imo).
I countered with 10% fully vested after August. This will be a minority stake, though, and after his initial low offers, I think I want to receive a mix of equity and guaranteed revenue sharing (not really keen on letting someone else profit off of my work without getting a kickback).
Given all of this information, how would you approach this situation? What kind of offers would you make? Should I just leave and take my IP with me?
I’ve struggled to find good advice. I am very appreciative of any help.
Given that you won't be doing anything else after August. Ask for 10-20% instantly vested, or a combination of instant and scheduled. And, he has the right to buy you out in X amount of time at Y valuation i.e. 3x TTM sales.
So if the business were at $1 million sales in 2 years, he/his investors have the option to buy out your 10% for $300k. For example.
Don't do profit sharing on a pre-rev company. Pulling money out of small software company that's just getting started hurts both your interests.
The likelihood that this doesn't survive till August is much more significant than you imagine.
The likelihood that it dies a few months after you leave is greater still.
Take the 3% as schmuck insurance and move on with your life.
If you don't believe in it, maybe negotiate up to 10% and work your regular job.
If you do believe, go all in. Move back in with your parents, get a part time retail gig for spending money. This startup is your full time job now.
Sounds like you don't really think it's good to work out. What's the difference between 3% of 0 or 10% of 9.
Furthermore, once you leave the product is probably going to collapse.
Ideas are worthless FYI. What is your co founder going to do when you leave ? Hire someone ? Find another person to build it ?
You get 50%. Your partner gets 50%. If and when you actually leave, then you renegotiate based on actual future contributions of each of you, maybe let your partner increase another 10-20% over time.
Avoid VC money like the plague...
This is, I believe, a copy of the article "Joel Spolsky on Equity for Startups". It's a very short read.
But disregarding that, this thing is DOA.
• You haven't touched the market, have you done at least some sort of market study? (inb4; nope)
• One of the co-founders (you) is leaving.
• You and your "partner" are definitely not friends.
• Your product is an MVP in NextJS; is it also yet another OpenAI frontend? That has close to zero market value. (Although in the current environment you could raise a few million with that, lol. Note: you could raise != you could make.)
Because of all these reasons the chance of this making money irl is very slim.
What you both have to do is call it a day, stop fighting over literal pennies, end it up as gentlemen and then go on with your lives and find people that fit both of your desires and lifestyles more appropriately.
zero users, zero sales, jesus