I know this question has been asked, but I have an odd situation.
My web based startup was incubated out of a late stage startup. We'd been running for over a year, with a solid business model, good customers, and ready for growth. Unfortunately, the late-stage startup went belly up and took my startup with it.
Luckily, we were able to find an investor and we bought the assets out of bankruptcy. In return for his investment, he is receiving 2/3 of the equity. It seems high, but we are very early and obviously in a tough situation.
We have three co-founders, including myself, who have to split up the remaining 1/3. Here are the profiles:
- Founder 1 (CEO)- Experienced in enterprise software, good financially, found the investor, great connections in the industry, most early customers are his network, limited domain expertise, and is very light on web acquisition models needed for growth.
- Founder 2 - Strong domain expertise, great with customers and prospects, key to our customer success and strong product advisor.
- Me - Responsible for the product and technology. Work with the engineers to build the product as well as product vision/roadmap. Solid domain expertise (not as much as founder 2), but strong on web acquisition models, marketing, etc.
Founder 1 presented an equity breakdown that had him take 4x the amount equity relative to me and our other co-founder. His justification is that the company wouldn't exist without him because he raised the money and he has the most experience. My argument is that the company wouldn't exist without me or the other co-founder either. You can't have a software business without a product, marketing, etc (me) or without customers who are very happy and evangelize for us (Founder 2).
My instincts are to give Founder 1 2x the equity of the other founders, because he did have the connections to get early customers and of course the connections for the investment. However, an argument could be made to split the equity equally.
Question: What would you do? Am I overreacting to his 4x negotiation? Is 2x for him fair or should they be closer to equal?
Thanks in advance!