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[Disclaimer: This question was also posted on Hacker News]

Howdy,

Just 6 weeks ago my co-founder and I began working on our startup full time. We want to accelerate development and have talked to a friend who has the right skills and level of interest. He has a full time job so he can only commit 10hrs/week; but he is willing to work for equity and no cash.

My co-founder and I both work in SF – we believe the time we spend together is very valuable in the early stage when a lot of spontaneous discussions take place. Our friend lives in the valley, so we will not have some of that interaction.

We are thinking we should offer him 4-5% with the same vesting schedule we have for ourselves. Would you consider this fair? If not what would sound more reasonable? Also, would you consider this guy a co-founder?

Thank you in advance for your responses. We greatly appreciate the help.

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2 Answers

up vote 2 down vote

Giving away equity in your company is never a good idea unless you really have to.

And offering a small stake as motivation rarely has the outcome you want since until the company is sold (either privately or on a public exchange), it has no realistic value.

Further, giving him equity makes him a partner for the life of the company or until you can convince him to sell it back to you. Do you envision at kind of long term relationship with him? Will he always act with the best interests of your company at heart?

And from personal experience, most investors you may wish to use later will view equity in the hands of a third party as risk and will demand terms less favorable to you to compensate.

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Thank you Rob. We agree it is not ideal but we need his bandwidth. We will make a modest offer (<4%) with potential for higher participation once/if he joins full time pending his contribution until then. We have a 4 year vesting schedule with one year cliff; at the end of the day if he performs to our expectations he will deserve to have the equity. I also understand your comment about professional investors preferring a simpler ownership structure, but this is not more unusual or harder to deal with than friends & family. After all, we are not talking about big equity. – caffeinated Jun 13 '11 at 19:41
up vote 0 down vote

Why not offering him a deferred salary? Make it juicy enough so it is interesting and at the end is great for you since you don't have to give a part of your company.

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Thanks for your response. We decided to move forward with equity. We implemented strict metrics to evaluate his contribution paired with a 4 year vesting period and a 1 year cliff. If he is better than good he will deserve this and will hopefully join full time later on. – caffeinated Jun 20 '11 at 18:06

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