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Reviving a project with a new co-founder - how to split equity?

Hey everyone,

So I was talking with another person about one of my projects that I put on the side for more than a year and just decided to start working on it again. The new co-founder was very excited about the idea and wants to help me with it, which I fully agreed with.

I was wondering if you can help me out with how to split the equity since we both decided to take this seriously.

So I created this app by myself and put all the initial work in it (development, marketing, design, maintenance). The total work amounted to maybe about a week with some extra time dedicated to marketing and maintenance. Total work time ~1 month.

The new person has a bit more business experience than me and also some connections that will benefit the product in terms of initial users. So the roles will be:

Me: Development, overlap on business & marketing
Co-founder: Business & Marketing, networking

We are up for splitting this as evenly as possible, but we do realize that a 50/50 split might be too dangerous in the future. So now we decided to do some research to make sure that we are doing this right.

What do you people think? ๐Ÿ˜€

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    The first co-founders I brought onto my project was after more than a year of me working on it. And now I'm in the situation of bringing on new co-founders for a reboot after 3+ years. My opinion is that my time into it previously is a sunk cost. (Also taking into consideration that I don't have a product or users anymore after the first team and product meltdown.)

    I have to consider that the people I'm bringing on-board were also getting the relevant skills for the project during this time, they were just working on other things. If I go into it with the attitude that, "I've done more than 50% of the work already", it's really setting us up for failure.

    Fortunately, you don't have that attitude, and now it's just more of determining who is going to be the ultimate decision maker, and the more public representative. This person can get the extra 5%, or whatever is deemed fair, and then takes on that added responsibility. Or, even with a 50/50 split you can still have it in writing who has the final call.

    For me, I like being the decision maker, but I really don't like constantly pitching and selling. I have to force myself to do it, when I'd rather be working on the product. But I recognize that the decision maker also has to be the one getting the direct feedback in the early days when you're still figuring out what / to whom / how to sell.

    1. 1

      That's a super good point you make with the work invested in a sunken ship. In reality, I think all the work that matters in my situation is creating the actual platform which didn't take that long. On a business timeline, that's peanuts. I think I'm leaning more on getting the smaller part of the equity since my co-founder is really open to contacting people and I've seen that already with her other business.

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        For clarification, "sunk cost" refers to time / effort / money you invested in something that you can't regain, so it's not a consideration for the future.

        For example, if I worked on a project for a year and then received angel investment, I can't pay myself for my past year of work from that money. The investment is for future efforts.

        I definitely didn't mean that your project was a sunken ship :-) , I just meant that in your case you might want to consider your month of work a sunk cost that you don't consider for the equity split. Now, if you had thousands of dollars of MRR from your product, that's a totally different story!

        1. 1

          It is actually kind of a sunken ship because all most of the effort that matters was spent in the development which didn't take more than a week. There's no monetary investment (other than a cheap domain). Also, the app doesn't have valuable users at the moment and I didn't make any money with it.

          1. 2

            Ideally your partnership can change that!
            Best of luck

  2. 1

    this is down to relationships and your own gauging of it.

    If you are putting in the work up front then you should really be having a larger share of it to begin with. If his connections and experience show to be fruitful then you could agree to transfer set amount of shares upon hitting key milestones.

  3. 1

    50/50 works for some people, but it's not the best option for all founders. There are quite a few factors that go into calculating the equity and I won't dive into that, as there are many helpful comments in here around that topic.

    Both you and your co-founder know exactly what you're bringing to the table. Settle for a split which makes both you excited and eager to work on the project. If one of you feels like it's being under-appreciated it's going to reflect that along the way.

    Things change, people change, that's why it may be a good idea to look into vesting the equity, so one of you leaves the other hanging.

    1. 1

      Thanks for you comment. In the end, we went with 50/50 and one of us has the power to make the final decision. And yes, we chose to go with vesting over a 1-year period in case someone wants to drop out. We're both happy with this decision and put all of this in writing. Now it's time do this thing ๐Ÿš€

  4. 1

    What happens if the cofounder loses interest?

    1. 2

      That's where the vesting comes in. Every month both I and the co-founder get 1/12th of the shares

  5. 1

    My Co-Founder & Founding Team reasoned & negotiated our cap table. Around a year later an advisor recommended we read Slicing Pie, so we did & later agreed it would have been best to use the framework that it espouses. The book's website reads somewhat like your question... hope it helps!

    Mike and John start a business. They decided to split everything โ€œ50/50โ€. Mike sits on his butt while John does all the work. John needs to hire someone to help because Mike is worthless, but Mike owns 50% of his business- now what?

  6. 1

    I would agree with those saying 50/50. It sounds like the project would have collected dust if not for the interest of this new co-founder, so really you're giving away 50% of nothing at the moment. And if it gets traction going forward, you're gaining 50% of something valuable.

  7. 1

    Hey Raz. Do anything but 50/50 which is rarely a good idea and for the most part simply postpone the question to later IMHO. I've typically in that initiation of a new venture put in a little money myself, the amount doesn't really matter much, and then on that basis created that ~ 60/40 or similar type split to make sure we are off to a good start.

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    This comment was deleted 3 years ago.

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    This comment was deleted 4 years ago.

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