Equity distribution among Co-Founders Pre-Money

First off, drop any talk about titles. Title's don't mean shit, especially in a company that hasn't started yet.

You guys have a confusing business relationship, especially since you are working for this old company while building the "new" company.

First off, are you doing all this work for free?

Secondly, is this equity for the new company only or both companies?

What happens to the old company when the new company is launched?

This isn't easy because you guys are dealing with a lot of variables.

So life is a negotiation -- Your MBA should have told you so much :-)

It sounds like you are just the two of you (for now)... Difference is that he has put more time (=money) into the legacy, but that you somehow are not using that as a base but starting from scratch in a new venture.

Offer to match his investment and go 50-50 on the ownership.

If that does not fly, ask yourself if you can do a better job by doing it alone and starting your own company -- or do you actually need him for something? If so, you need to make you mind up on how to value your contributions.

For a Series A funded company 10% for a VP of Operation is very good -- but you are not a hire after Series A valuation, much more a founder. I have seen people with that title getting 10-20% as a founding team member, but that is without putting equal stack into the company.

Hence if you create a situation where you are equals -- I.e. match any investment, time commitment etc -- then you stand a better chance of negotiating higher equity if not a straight 50-50 .

Alternatively, as a straight up employee rather than founding team member, VCs typically use a rule of thum that they are looking for 5 time return on investments for companies which exits with 3 years and 10 times returns for companies which exits within 5 years -- now with your cut in salery and fair-market values of your skill, calculate cost to yourself based on less money earned, and project that out over 5 years, and then figure out whether your shares will be 10 times worth that then. That should be your absolute minimum -- anything less than that and you are better off getting a job with whoever pay the highest salary.

Hope this helps

There is no formula. It depends on how much you guys need each other. It is possible that your assessment of how much he needs you doesn't match his, or vice-versa. In that case you may not be able to come to an agreement. And this is also why there isn't a standard scientific approach: there isn't some objective authority you need to convince. You just need to convince each other.

To simplify, ignore dilution for investors and employees for now; you'll figure those things out mutually (with those parties) later. You have one situation where he owns 6x as much stock as you, and another that is much closer to even split. This is a pretty wide range but not an irreconcilable one.

Raise all your concerns, tell him what you want. It may also be useful to outline specific responsibilities and timelines for commitment. If you want a more comprehensive approach, check out the book The Partnership Charter.

So, sounds like he gets 90%? He really doesn't have any obligation to do any of those other things.

I'd look at it like this. If you are making 85k now, and you quit your job to go work for this company and become a partner / co-founder you have to figure out how long it will take to get back to 85k ... and then to where you would have been if you wouldn't have started the venture.

So if there is lots of risk of you not being able to get your salary back to where you want it or more than you need more equity. If you are going to be making 85k right away, then 10% is probably sufficient. So there is a middle ground in there that you'll have to find.

Also, maybe you arrange something where you hold some of the % that will eventually be given to future employees / VC etc. rather than just him?