Equity split when bringing up a co-founder into a profitable bootstrapped SaaS
Say you're a solo founder who got a bootstrapped SaaS that just crossed $1k USD.
Your SaaS keeps getting more traction, and you're convinced that with a co-founder things would go faster & better.
Let's imagine it's a tech co-founder who'll take full ownership of the tech aspect. And you'll be responsible for the business side of things.
What equity stake will you put on the table?
EDIT: Insightful ideas. 💡 Thanks for sharing, everyone!
Purely speculative:
You took the initial risk and made the important jump from 0 to 1. Now you'll be making the jump from 1 to 10 together.
Maybe 33% for your new co-founder? But that also depends on how fast you'd be able to grow without him and if you could just hire someone instead for a lot less.
I like the way you think about hiring someone first to evaluate if that'd be enough.
As for the confounder split. I've been reading up on this topic in different sources, and they all seem to converge to the following idea:
Yes I was going to bring up the 50-50. Most of the work, time, and hardships are in the future so you need to be working together happily. Don't want them to quit 5 years in because you have more equity so they don't feel like dealing with the BS themselves when shit hits the fan. That's what YC says. Cofounder breakups are the #1 reason for the death of a company.
Thank you so much for sharing that info! Points 2 and 3 make a lot of sense.
I had never researched the topic before, so I'm really glad you shared these insights with me. :)
Whatever you do, I actually DON'T recommend an equal split. When an important decision has to made & you both disagree, it leaves you in a tricky spot. Plus, it's never the case that both people are bringing an equal amount of stuff to the table, and in the case when you've already been at it for a year, that's of course obvious.
You can make decisions not based on equity. You can set responsibilities where one person has final say on certain matters that fall into their responsibilities.
True, ideally everyone can make decisions in their area of expertise, but a 50/50 split makes it more difficult than necessary if the relationship breaks down. Have read lots of stories of founder relationships gone awry, & having a non-50/50 splits lets the company at least move forward meanwhile
Two options:
Look up slicing pie - see if that works for you and if your co-founder would be happy to take it.
Vesting with/without cliff - depending on the product, how much money you've put it, how many hours the co-founder will work, their skill set, and passion etc, I'd say around 15-40%, and could mix in monetary compensation as well if they wanted.
BUT
I'd offer someone a contract first - pay whatever you can negotiate i.e. call it a trial / probationary period and see how you guys get along. You can discuss the above options before hand, or afterwards. Conversations can change dramatically afterwards.
I wouldn't go beyond 30% honestly.
You've derisked the business so much on your own, and you're still going to be pulling your own weight moving forward.
Whatever he says, he'll never be as committed as you'll be moving forward.
I'm not exactly sure you need a co-founder at this point honestly.
I'd try to hit the elusive $10k MRR on your own first, and if you're obviously failing/plateauing then bring someone on.
If you hit $10k MRR on your own, you probably won't need a co-founder anymore, but a first hire.
Fair points. I think it makes sense to try start with a hire first and that can already be enough.
Maybe factor in a gradual ramp over a year or two towards 50-50. You wouldn't want them to give up after a month or two and sit on a 50% claim to your company.
You protect against this with a 4-year vesting (getting ownership of the equity gradually) and 1-year cliff (nothing if the leave before)
just gotta talk it through. gotta get to a place where you're both comfortable.
this is where things can get all fucked. so, you gotta be honest. both sides of the table.
good luck!