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I have been working with a startup for 6 months. It is an advertising company for which there is a very heavy technology portion (I would say 50% of the company is based off of a mobile front-end, and 40% is based off of a backend tool). Until a month ago, I was the only developer, and remain the only front-end developer. This app is the thing that the other guys (who started the company before me, but said I would be a co-founder) have been flashing around to potential customers.

I feel that as of late my work has been under-appreciated. Firstly, I was offered a ridiculously low equity -- 8%. I turned that down. Eventually I said I would settle with 20%, but still feel like it's a huge smack in the face, especially considering all the hours I put in to making this app, while attending grad school and being a family man.

Now (not sure why now, but it seems to be a bad decision on their part) I am reading over the first contract/paperwork to get the agreed equity and position in the company (CTO), however part of the contract states giving up ownership of my source code.

I have received no money from them, only promised equity. Am I strange to think this is a bad idea - that I should keep ownership until I have received some sort of payback for my work, or maybe a better equity deal?

I am thinking heavily about just selling them my work, but I also don't want to simply abandon the startup. Can anyone give some helpful advice, say about what you would do, what I should do, or maybe any compromises that could be made?

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Spend less time coding and start getting involved in the business. Do presentations, technical sales pitches, etc You will soon be able to see if the project is viable and you will also be putting pressure on the rest of the team to get sales and revenue. (And as the front end developer you will hear what the exactly prospects are looking for - code it, sell it and start making money). Revenue makes everyone less stressed. – james Mar 14 '12 at 4:05
"Promised" equity? Do you have written documentation of some kind of the agreement you made? I think I'd advise talking to a lawyer - someone who has dealt with startup equity before. I'm not convinced OnStartups is the best place for legal advice. – Alex Cook Mar 16 '12 at 7:46

6 Answers

up vote 26 down vote accepted

Unfortunately I have seen this situation and sentiments hundreds of times (as an entrepreneur, advisor, mentor, educator ... and developer). Most of the time this is due to the developer or engineer overvaluing their contribution or value to the new venture. Yes. This probably means you, too. OK. Let it sink in for a moment, and just consider my advice before waving it off as "he doesn't know the details of this situation" or "I'm different".

There's a famous quote: "Any fool can paint a picture, but it takes a wise man to be able to sell it." ... Of course I am not calling you or any developer a fool. But the point is there are a LOT of important facets to making a startup company - and everyone thinks their contribution is the critical force deserving 50% or more. I'm am sure the founders - FOUNDERS - (I will shout it again FOUNDERS) believe that they should get nearly 100% and giving away equity to a "mere techie" is an annoyance and tradeoff they have to suffer because they don't have the cash. And rest assured, right now, you are (to them) both an annoyance and a huge risk. Feel better? Of course not. It's a bitter pill.

My advice. Do some soul searching. But most important - understand you are definitely not in a position to see things in the best or fairest perspective. Probably you are best working either for a funded startup as a well paid employee, or founding your own startup and running the show (then you will understand things from the founder's perspective). More specific advice - TALK with the founders. and NEVER do anything vindictive or destructive to the company. This behavior will follow you for a long time - and brand you as being "difficult" (who want's to work with a 'difficult' person - much less bet their future on them)?

Here's a little extra perspective. 20% equity is HUGE - for someone who is not a cofounder and not slated to be CTO or senior management. Understand that yes, while RIGHT NOW - your contribution seems like an overwhelming part of the company - EQUITY IS Forever (or at leats for the long term). To build and run that company from startup to $billions will take a huge marketing, sales, management effort and fundraising, a team of people that will ALSO put in 20 hours a day, sacrificing family, finances etc. Not just you. Don't you think the CEO who is also putting in 20 hours a day (and using his/her rolodex and reputation) to raise, say $5million in venture capital thinks that they deserve 80% of the company?

More practical advice:
1) Do some soul searching. decide if you think the company's idea, market, and founders really have have a chance of major success. If not - Talk with them and arrange a friendly, graceful exit.

2) If you think the venture is something that has a chance of major success - TALK to the founders. You will find out quickly if they value your contribution (for the long term - not just short term panic). If they DO - then talk to them about some kind of Equity split or OTHER compensation (future bonuses if they get funded; a guaranteed salary/CTO position?) - and you can suggest that the equity split - while "large" be vested shares or options - actually they would be stupid to offer otherwise - but this way you can get your shares if your contribution is indeed as important as you think it is, yet they don't have to risk a huge part of their company if you turn out to be a problem.

Again ... perspective - a little humility. All lead developers think they should own 50% or more of a startup even if they weren't the founder. And the majority are wrong. If the founder's came up with some cash - do you think they could hire a few guys to get the job done with 0% equity?

I know this is some bitter advice - but it is also some independent advice from someone who has been part of many new ventures - as a developer, founder, investor and advisor.

Best of luck!

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They promised him he would be a co-founder and has received no salary, so I don't think this implies he's just an employee. – JeffO Mar 14 '12 at 0:15
up vote 3 down vote

If you are working your butt off and he is just sitting around waiting for you to finish so he can sell it then you have a right to be a little angry. If he is out there actively pushing it , building marketing plans, lining up customers on vaporware / a product in development then you should be excited. 20% of something that has a founder with energy and who is willing to make it happen should be fine. It will eventually be 0 and 50% of 0 is 0... or successful where you can get paid for doing your work plus have your equity.

And, future partners that he wants to bring in he'll just have to take out of his cut hah.

Plus, any startup will want ownership of their product. There company would be worth 0 if no one can buy them and own their product. Having you have ownership of it would kill any value or their ability to sell their company later. So that is common and necessary.

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up vote 1 down vote

They put nothing in writing and dangled promises of being a co-founder with equity and now are going back on their word. They are unprofessional and don't know what they are doing or they are cheats and liars. My guess is a lot of both.

Determine what this company is worth and how much of that value is made up of your software and ask them to buy you out. This relationship is only going to get worse for you and any customers or investors they can bullshit into giving them money.

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up vote 1 down vote

Startups or any other work is like a relationship (sometimes marriage). Sounds to me there's a mistrust there and lots of disappointment, don't stay! Move on.

Part of "successes" is to come happy to work and feel "part of", if you can't trust them now, it's not going to change.

From negotiation point of view, you have nothing to lose; in fact you're in a very strong position, capitalize on this with respect. If they don't get it - they will have to go back to square one (they don't want that).

Good luck!

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up vote 1 down vote

I am not sure if that puts your expectations in a perspective but Mark Zuckerberg owns about 24% of facebook (as reported in 2010). That makes you think, no?

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24% of a pre-IPO COMPANY (they're no longer in the 'startup' phase) is a completely different situation. – Itai Sagi Mar 20 '12 at 17:01
up vote 0 down vote

Sounds like you won't be able to be happy with them if you keep working there. Negotiate how to free yourself from them - you may just have to walk away - so that you can focue on things you enjoy and will give you something in return.

It's a lesson a lot of us learn the hard way.

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