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Forming a new software startup, how do I allocate ownership fairly?

I would be the sole on-site tech person, along with being 'tech-co-founder'

There are two business-co-founders as well getting about 20-25% each.

They offered me 10%, however; I've read this is by far the bare minimum.

I will have the job of writing the demo of this product and getting everything technical off the ground. The system is an education platform that will run on the cloud primarily.

Background of Cofounders:

Business-partner 1: 20 years industry experience, CEO of company. Potential Salary. 20-25% equity. Business-partner 2: Just graduated, visionary for idea. No industry exp. Potential Salary. 20-25% equity.

Me(Tech. Co-founder): About to graduate, already have industry experience in IT of 4-5 years. Potential Salary. Offered 10%.

Is thinking I should get 15-20% reasonable in this case?

Thoughts? Business and technical people feel free to chime in!

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In general the answer is really up to the founders. 2 biz guys and one tech guy sounds like the wrong ratio to me - but that has no bearing on the question really. You should look at these related questions: answers.onstartups.com/questions/tagged/equity – TimJ♦ Jul 6 '11 at 18:43
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This one is worth a look too answers.onstartups.com/questions/6949/… – TimJ♦ Jul 6 '11 at 18:45

marked as duplicate by Jesper Mortensen♦, Zuly Gonzalez♦ Jul 7 '11 at 1:34

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3 Answers

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There are no hard and fast rules about this stuff. Its pretty much up to the various parties to come to an agreement.

The question I have is where is the remainder of the shareholding going? I count an upper limit of 60% so far which doesn't quite add up. If you take the 3 values of 25, 25 and 10 and scale the total up so that 60% = 100% then you are actually being offered 16.6% of the company.

As soon as another party comes in (like a money person) your shares will be diluted down again but that is pretty standard.

Realistically, you want to approach your co-founders with a good justification for an additional percentage. Consider the following as starting points:

  • You are going to be putting in a lot of hard yards and late nights as the techie, they will have stress and decisions but when its all broken it will be you in the hot seat.
  • A lot of the practical success of the venture will rest on your shoulders. WHAT it does is up to them, HOW it does it will come down to you.
  • When it comes to voting and direction of the company you need know your vote will count.
  • If your going to invest the next 3-10 years of your life in this, take on all the risk and stand beside you as equals then you want to know you have an appropriate say in what happens.

I think these approaches are better for your negotations than "I think I deserve 20%", and its worth you considering the fact yourself.

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Great comment. Thanks Robin! – user9968 Jul 7 '11 at 13:44
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Aside from the good answers already given here, at least some part of what you can get is based on how well you negotiate. When two people go into a car dealership to buy a car, they rarely pay the same price. The one who negotiates the best gets the lowest price.

You have an immediate disadvantage in negotiations, you are a recent college graduate. An experienced business vetran will assume he can take advantage of your inexperience by offering you less. But you have an immediate advantage- as the only technical person you are the one doing all the immediate heavy lifting.

You are doing the right thing here by gathering information. But you also need to bone up on negotiation. You should be able to raise that 10% share if you do that. Think of the 10% as a starting offer. It's the same thing as a sticker price on a new car.

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Thanks for the awesome replies everyone. That being said 10-20% is going to initial investing Is 15-18% reasonable to go for? I know i'm a almost just a graduate, but I AM the one with the technical know-how :) – user9968 Jul 7 '11 at 1:32
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Ownership should be allocated based on value and risk. As far as value is concerned, you'll need to clearly define your business and identify your competitive advantage. Your competitive advantage is your core business. Once you've identified your competitive advantage, you'll see the skills needed to make your advantage sustainable. Those members that add the most value to the core function of the business should have more ownership. Every skill is not equal.

Risk is another important component. The members that have contributed the assets (which can be tangible like capital and equipment, or intangible like intellectual property as in "Who came up with the idea?") should be compensated more.

If you are the sole tech guy, producing all of the product, 10% really won't suffice in my opinion unless you were being compensated financially for your time.

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