Hi. A friend of mine recently won a hackathon with 2 more people. They won a cash prize redeemable only to fund a company, which they intend to do. They also got approached by an incubator and are preparing a pitch to compete with other startups.
Initially they decided to divide the equity 1/3 each. However one of the co-founders decided he wants either 50% (to run the company) or 10% (to be an advisor and not do much). He said the output of this decision will affect his participation for the initial presentation to the incubator.
This cofounder is non-tech with a business background, no past professional experience but lots of charisma. My friend is mostly tech, no past experience either but knows devops, cloud services, data science and webdev. The company would require mostly business negotiations and logistics at the beginning (mostly about how to handle large quantities of stock to dropship), and eventually move to a more tech product oriented phase with a website or app that would require the technologies my friend knows about.
Neither my friend nor I have enough entrepreneurship experience to see how to proceed without this biting her ass in the future. Any advice? Thanks in advance.
In my head - I think you’re better offering 10% and letting them step into an advisory role - however still requiring them to particpate fully in the presentation (if you don’t gain the funds from the incubator he isn’t getting shxt, so it would be in his best interest to help secure the funds).
Once that’s out of the way, let him step back into an advisor role - and either hire out help with the negotiations/logistics, or spend some extensive time learning that part yourself (courses, certs, online learning, etc).
May cost you a bit more in the start - but once you transition over to the tech-oriented phase and can phase out the additional help or have learned enough to handle it yourself you’ll definitely reap the reward from 90% equity split.
Nope, 1/3 is reasonable. you might have a little ‘bonus’ to the ‘lead’ founder, but 50% 25% 25% doesn’t make sense this early.
if the issue is about salary, because he wants to live, then thats separate to ownership.
currently theres no revenues or even a business. not until a shippable product has been released.
if business founder is already playing hardball, thats reflective of the future relationship you will have with them, i imagine if you cut him out fully, 0%, then he will try and open a competing business.
Charisma is easy to find. experience and knowledge isn’t and track record is really what matters.
you should also peg the equity vesting to target - so in this scenario i might say something like -
until product is launched we all have 1/3 equity
once the product is launched, and released and you manage to hit number is sales then we will transfer 5% each to you.
if the target isn’t hit, then its still a 1/3 spit until its it.
in other words, if he wants the lion share of the equity, he needs to work for it.
tech founders are harder to find and replace, thats just simple fact r/startups is full of ppl begging to find CTOs.