Should I join a start-up as the only or main tech/developer member with very small equity offered to me?
The full story is like this:
Almost two years ago 2 guys approached me to build a project for them for an idea they had. So they paid me, I build their project and after almost two years it seems to work fine with the few customers they have.
They now realized they could have this tool build as a Software-as-a-Service and they are seeking funding to form a team and build it.
These two guys, musicians, and I are the only team members since the beginning.
So they offered me, given that they successfully get funding, to join them in working on this start-up.
I would need to quit my job and get paid the same salary from the funding money. It should last for at least two years, after that we need to be profitable.
So now comes the part I am skeptical of. For equity, they offered me something very small. About 1% and this number might be smaller if the evaluation they initially get is very big.
So my question is, does it worth it for me to quit my current job, join them for something that it might fail in two years from now, to build the whole product based on my technical skills, of course with their music skills as well, and only get 1% for the company or less?
#ask-ih
Based on your post and subsequent replies, I would say, don't do it.
Here's why you shouldn't do it: You feel disrespected, and you believe what you bring to the table is just as valuable as what they bring to the table(which others have pointed out may or may not be true).
Here's what you need to do if you decide to do it: If you did feel disrespected from what just happened, you need to learn to get over those feelings real quick to be a co-founder. You will have doubters from the market, investors, and at times yourself so your ability to keep your emotions under control will be paramount. Next, if you want an even split or very close to it, you will need to pull your weight across the company. Technical expertise is helpful, but if it's just three people, you need to absorb yourself into all aspects of the business. You need to be able to come to work and hear "people aren't signing up" and turn that into "ok what can I add to be able to inform at what point do we lose a potential sale." You need to able to hear "people will sign up if we just had x" and turn that into "what would it take me to get something that looks like x as quickly as possible to confirm that sales will increase." Why do YOU need to do that? Because it's your business now, you aren't an employee. Your mindset needs to changes from "we have a 2-year runway" to "we will succeed now."
This post might come off a bit rough, but based on some replies I think you needed a bit of shake.
That's a great comment. With this kind of attitudine I would consider a significantly increase in his equity, but still not an even split, because they bring the funding. Something like 25% would be ok.
If what you are saying ia true (they will pay as much as you get paid right now) 1% of equity is even too much. The equity should compensate the risk that you are taking, accepting to receive a salary that is below what you could get elsewhere.
Well, I have a decent job and salary. So if after two years if the startup fails I have nothing, whereas they would have a well-improved solid product to continue where they left off. As mentioned I already build a product for them and they already have customers and they increase their customers slowly but steadily. So all the risk taken is from my side.
Also, I don't believe that the current product is successful solely just because of their idea. It is also the implementation which is mostly part of my work as a developer. During the development, a lot of my ideas were implemented to bring this product to a state where it is now. Of course, the main/core functionality is based on their initial idea.
The salary you will get is the same. True, in two years you could be failed, but that could happen to your present company too. You could even get fired. And I don't see how having two years of startup experience, even if it is a failed one, could hurt your value in the market in the future. I would argue that they could increase it, considering the role you are going to have (basically a CTO).You look young, good developers are always looked for and not many of them can say that they were in the founding team of a capital backed startup.
Even if what you said is true about the current product, we are talking about the past. The equity split will be based on your future. If you want to have a bigger piece of the cake, then you have to accept a lower salary and maybe contribute to the funding too. Getting funded is fucking hard and, as I said, I don't see real risks for you on the current deal so I believe that market salary and 1% equity are a honest deal. I am sure that you can negotiate for a bit more equity (something like 5%) considering the history between you and the founders, but you should ask for it before the funding.
Hi, if you are not just an employee and you consider you a founder of this new project (SaaS), then it totally makes sense to ask for a good amount of equity, based on your responsibilities, and it's always recommended to sign a founders agreement document with equity vesting (4 years).
"Startups are about execution, not about ideas."
https://blog.ycombinator.com/splitting-equity-among-founders/
From a risk/profit perspective, it does make sense that if you get paid your current salary, you won't get a significant share of equity. So you can go one of two routes:
If you want to look at industry standards, this handboook from Index Ventures (not very Indie, granted) is very well made: https://www.indexventures.com/rewardingtalent
The thing is, from the funding we will all keep our current salaries, not just me.
So the way I see it is like this:
We are 3 people, I put the technical expertise and knowledge and they put their expertise and knowledge in music so we can build a SaaS for businesses.
I get 1%, they both get 49.5%.
The product already has a lot of my ideas implemented in it. The product might pivot at the end, it might not from their initial idea. Still, I will only have 1% for whatever contribution I make. Significant less from what they will get. I am trying to figure out if this is fair.
Thank you for the link btw! :)
ok i didn't understand that they would have the cash AND equity, and you just the cash. All considerations aside, sounds from your post you'll always feel you've been cheated if you go forward with that equity split. So, by all means, don't go into that venture with these terms because you'll always hold a grudge against the founders...
It sounds like they're asking to hire you as an employee, not asking you to join as a co-founder?
If you're an employee being paid a full salary, that doesn't make you entitled to a large share of equity.
I agree! But why should I join, get a salary of what I get now and have the possibility to lose that after two years?
If the product becomes a success is also part of me, the ideas I brought these two years were vital to the product that it is now. Of course the core functionality is based on their initial idea.
So if I join as the only developer I would bring ideas to the table and at the end, if the product becomes a huge success, I will get just the salary I have now, whereas the other guys would have a big portion of a product I helped build with my skills.
So why would I want to join if there is a big risk for me and not a reward at the end and not focus my energy and ideas to something that would be more fruitful for me?
Is that any different to your current job? Do you have a large equity share at your current employment?
I can understand your frustration, but honestly if you're not a founder of this company and you're being paid a full salary, then you have zero entitlement to equity in this company.
If they get funding they'll create a ~10% stock option pool for all future employees, and giving you 1% sounds about right. As the company grows, employees will get much less than 1%, and they'll have to purchase the options.
If they gave you say 20% – what about employee #2 and #3? Are they going to give them 20%, and then completely screw themselves and the investors?
It depends on who you consider Founders. If Founders are the ones who have the initial idea than no, I am not considered a founder.
But the idea itself is not a start-up or a company. They approached me with nothing but the idea. We had several meetings and discussions and I provided my technical expertise and also some ideas about how to make this work better. I also tested, coded, some things so I could provide better ideas and feedback to them before we even agree on something.
After some time we all agreed and I started working on the product where they would test it every time I delivered something.
To be fair they paid me a fee for what I delivered. Not what I fully worked for, but still they paid me the initial amount of money we initially agreed. But to also be fair to myself we agreed on 5 things and I delivered 8 or 9 without extra compensation.
So if Founders are the ones who initially establish something, I am considered a Founder.
But from your point of view, would you consider me a founder, or just an employee/contractor who delivered the product and you just want me to continue working on the product based on a salary because I am already familiar with it?
I would not consider you a founder, I think that is explicitly clear by the fact they paid you for your services. The fact you did some spec work and over-delivered doesn't change that.
Unless your name is on the registration paperwork and you own shares in the company, then you are not a founder.
You are going to end up doing the bulk of the work and producing most of the value ... for 1% of the product. Doesn't make sense. 30% is where it should be or they are basically saying your contribution is worth only 1/100th of theirs - both insulting and a bit stupid
"The most of value" the value comes from sales and marketing, unless they are asking him to develop a Saas that very few people could build. Plus, he is going to be paid a market value salary.
I think the value of a product is what it can offer to its potential customers, how much it will improve their business and this translates to how much money they are willing to pay you.
Marketing and Sales, which are super important just convert the value of your product to cash.
I will not build a SaaS that very few can build, but with a crappy product what is the use of sales and marketing if at the end you can't retain the businesses as customers because your product sucks?
I replied to your previous post, I don't know if you saw it.
Now, you are taking an extreme to make your position true (a product that sucks).
As I said in another comment, how many people on IH have a good product and make pennies? Lots of them, the overwhelming majory. Why? Because they can't sell, can't drive traffic, can't write the copy, can't find the product/market fit and can't fin funding (all marketing and sales activities).
And the price that people pay for a product is based on perceived values. Do you think that iphones are the most expensive because they are the best? Is Coca-cola the best cola? Are $500 t shirt better than $50 dollar t short? In all these cases I doubt it.
But, if you still think that you are worth more, just ask and you will see how it goes.
That's an odd assumption, unless the product is something few people could market or sell.
FWIW, in Tim Ferriss's podcast with the founder of Stripe, both of them said their worst performing investments were the ones most focused on marketing early on. Their best investments were the ones that started laser-focused on product.
Odd assumption? I don't think so. IH is full of good developers. Most of them have side-projects that make pennies, a lot actually make zero dollars. I don't remeber the precise stats, but something like 98% of websites make less than 100 visits per month. If you have a website, you have enough technology to make money in all businesses outside of tech, but with 100 visits per month you still won't make any money.
If you are not developing groundbreaking technology, the most important activities are sales and makerting related (finding customers, getting feedback, product/market fit, funding).
You can say that for a developer is easier to learn the business side than it is for a business person learn about the tech. And I would obviously agree. Still, the tech and in general the product is not the most important of a company's success.
Please tell me this is the twosetviolin guys :D
1% seems very low. Would you do it for 10% ?
I would advise you NOT to do it.
If they don't think you are worth it now, it will get worth later. Keep your job for now, and wait for guys that will value your work more than 1%.
Don't the trapped by your fear of missing out (FOMO), It will only get you into problems. Even if they pay you your current salary, giving you 1% shows how they think about people building tech products. Doesn't worth your time.
Only you can answer that!
It isn't a question of what's fair. All that matters is whether you think it's worth doing or not.
Obviously, you do not think this is fair. What would be a fair deal to you?
I believe the execution is more important than the idea itself. It proved and in our initial product delivery, were in order of it to launch some of my ideas, based on my technical experience, are also a key part to the current success of the product.
And I know if we are to build it as a SaaS I will bring a lot of ideas to the table.
So for me, I think I should get 25%. But I want to know other people thoughts about this, which are co-founders, because maybe someone that has the idea doesn't believe is fair for a developer to get that much of equity. Or maybe the developer deserves less, but not that low equity of 1%.
I'm not going to comment on whether a full salary plus 25% equity is "fair" in this situation. Every situation is different.
As a comparison, you can check out Sunil Sadasivan, who joined Buffer pretty early on as CTO and has been instrumental in their rise to success from a technical and cultural perspective. He has 2% equity (source), and he was number 4 if I remember correctly.
In my opinion, nothing in this world can be objectively "fair". Is it fair that the founders paid you the agreed rate to build the initial prototype? Is it fair of them to consider the delivered works in the past their property, no strings attached... or is it fair to say you have a right to claim a bigger part now because what you delivered contains your very good ideas? They did after all pay the agreed-upon price...
Fairness is a feeling.
What do you need to feel fairly compensated for the risk vs. the potential reward?
If you don't feel that anything less than full salary plus 25% is fair, then that's what you need to say. Don't accept anything less if you know it's going to eat you up from within knowing that your hard work potentially means the others benefit disproportionately compared to yourself.
No amount of analysis or other peoples' opinions is going to remove the feeling of being treated unfairly—ask them for what you think is fair and walk away if you can't find an agreement.
I generally wouldn't take a job as first dev hire for 1%. If the founders all lack technical skills and it's all on you, it should be considerably more. This is not just for your benefit, but also for theirs!
This comment was deleted 7 years ago
This comment was deleted 7 years ago