Would like the thoughts of the blind community on this critical decision.
My startup: I’ve been working on it for 6 months since leaving Uber to work full time on this. Have a decent angel investment that I’ve used to pay contractors to build the MVP. There’s 2 other partial cofounders (eng and PhD expert in the field we’re working on). I’m still the only full-time founder.
I’ve started talking to one potential cofounder who’s an MBB consulting manager (top 3 consulting firms) about joining to be the business leader who also does the sales, marketing, partnerships, that are critical to the startups success. This individual is really good (I know personally) but is demanding 45% to my 55% in order for them to join full time.
I’m a Data scientist myself and have come up with the idea, designed the entire product, and have managed the development of an almost finished MVP. The data science aspect of the startup is the main value prop, but without users that we’d get from partnerships and marketing, there would be no valuable data. So while this person isn’t technical, their function is still important.
Would like the thoughts of the blind community on this critical decision.
- Microsoft / Data DangerRngrIf he truly was your co-founder I would advocate for 50/50 ; if he joins later and you are past MVP and start having traction, it is a totally different game: first off he would not have a title of co-founder and second I would offer a stock plan any other key employee might have (I.e. a few %, may be up to 5-10 if he truly is remarkable, vested over 3-5years with a 6-12 months cliff)
- I definitely see your point and to “new” I’ve also heard this from Sam Altman. My point is though I am already 6 months into my full-time work, I will have a finished app in both app stores (MVP) by the time this cofounder joins, and already have a lot of progress on so many things. If they join now, should they really get 50%
- Expedia SharknadoA good business person can make or break it. Thousands of great ideas and prototypes die in obscurity due to lack of marketing and business acumen. If they’re really that good and have had experience in this type of a situation, it’s a good investment. Though what are your other co founders asking for?
- The other cofounders are alright with having smaller percentages since they are not full time and still keep their day jobs. When I say 45-55 split, I’m referring to just the allocation between myself and the other full-time person which would be this consultant. But that is a good point and part of the equation too. If I give the business person 45% there will be fat less equity to bring on the engineer to be full time or future technical teammates
- @peerstreet, 😂 lol. I totally share your loathing or consultants because I actually was a management consultant myself before picking up coding and becoming a data scientist. But one thing to add besides strategy and bs powerpoints is that they are good at managing and building relationships. My startup in particular is highly dependent on these relationships in the industry it’s targeting. But still, I agree with you
- How much would you pay a person of his/her caliber? How much specifically in the industry?
Maybe you consider raising another angel round and focus trading share for money, with a longer vesting gestation based on performance.
I've ran into people that are amazing and comfortable in Industry X but poor performance in Industry Y. Worse case is it cost you more cash but less headaches, especially with legal if it doesn't work.
- You realize you need to save equity for early employees as well right? This guy asking for 45% is out of his mind. Unless he already secured a $1m contract I’d tell him to take a hike.
Also keep in mind the skills you use in MBB do not always translate to startups. These folks typically flounder in those roles and spend time on things that don’t matter
- I am MBB 8 years + FB Marketing now. This guy is too greedy. I’d probably do it for 20-25 percent and so should he
- Or rather don't hire this guy. He's unreasonably greedy. He wants 45% without having lifted a finger. Imagine what he will ask for once he does something!
- Give like 8-10% of it on day one, but the rest should need like refreshers. Tie the refreshers to a vesting schedule of 4 years and make it contingent on performance.
- New ggg357OP - Answer these questions and hopefully that should help out...
1) Who will be the CEO...you or him?
2) Have you thought if he'd be on the Board of Directors?
3) Has he consulted with companies or has relationships with ones you want to partner with now or at a later time?
4) MBB peeps are sharp about thinking from all angles. But has he done any executing though? Even a side project.
5) Will this person only focus on Partnerships & Marketing or you expect him to help or handle Legal, Sales, Product Marketing, Operations, Tax, Recruiting & Fundraising? Will you help with these or add someone else to the team to do them.
If he is quitting his mid-mgmt consulting job to join a single person startup pre-users & pre-revenue...you've to be fair to offer him between 30-35%. Keep in mind this guy will dilute along with you. Employee pools, making prior investors whole, each funding round...equity goes fast man!
Most importantly, does he get your idea & vision and does he build on it? No amount of equity can ensure the passion & grit required to survive the storms of an early startup.
Hit me up if you want to chat further.
- Been there, done that.
- 1) me, they have acknowledged that that’s the goal and are okay with it
2) no board seats for them
3) yes - that’s the main point of attraction for me. I’m trying to use data science and modern technology to improve an industry im not too familiar with. This MBB consultant has directly worked with this industry for a while
4) took a 2 year break from the MBB to work on a startup, not sure how it went; then returned to consulting
5) that’s my vision for them, they will also do all those things. And in our trial period (only 3 weeks) that has actually been the case. He/she picked up a bunch of other tasks for me
Would love to talk to you further if you have advice, I’ll pm
- New eAUo73Do you love this guy? Like he’s a perfect fit? I had a co-founder that I had to get rid of 8 months in. Absolutely the worst situation you can put yourself in. Huge distraction and having to buy out a worthless POS that at that point is actively fucking up the business and you hate each other is a hard pill to swallow.
Bring him on as an employee with stock options tied to performance and a vesting schedule. If he doesn’t agree, stop talking to him.
- Bloc / Eng cerealboxToo much. I’ll do it for 20%.
But seriously, it’s a tough decision that you really want to think on. You don’t want to cheap out and get some third tier talent that will do a third tier job. If you are really set on this person and you’re sure they’ll be able to execute well, set contingencies and try to counter for a little less. Good luck!
- For everyone here - MBB managers make $250-400K. He’s not walking way from a $1M job
- A startup can never compensate to minimize the risk of an individual. Any employee's compensation depends on what they bring to the table. He could be making $10M and the rule would still be the same. The MBB guy needs to stay out if he doesn't want to rake the risk. 45% vs 20% is not going to change anything for him.
- Apple Snut Ella7-10% max. And no it’s not an insult. Does hiring him instantly double the value of your company over night?
You can also give that equity a beating schedule. 10% in year 1. Accelerated beating upon acquisition.
- Uber / Data homynymmoreToo much to give up at this point, and they're negotiating. Create a plan where he/she can start at 15-20% and "earn" their way to double that in their first year based on hitting hard business targets. If they are that good and they do hit them, it's a win-win. If they aren't, you're toast anyways.
- Not a bad idea, I’ve thought of accelerated vesting schedules as well. My problem is I don’t want to repeatedly have this conversation about how much each person is worth forever. It would be nice if we just decide a reasonable split now and never talk about it again and focus on the actual business for the futureDec 22, 2018 1
- New / Other techpowermoreI'd say that's way too much, and you can get somebody good to full that role for a lot less equity. For some background, I have an undergrad in EECS from an elite school, and worked in product-oriented sales and marketing positions at numerous tech companies like Akamai. I was a sales engineer, product manager, and product marketing. I also have an MBA from a top school. I started my own company and am bootstrapping without taking outside investments at this point, so I'm familiar with sales, marketing, product management, partnerships and product development.
This ex-MBB consultant wants you to believe that you need him to be successful. There are plenty of people with tech backgrounds who could handle sales/marketing and partnerships without giving them 20%. I'd be happy to talk via Skype/phone to give you suggestions.
Of course, there are a number of caveats that depend on answers to questions like:
What industry are you targeting?
Who is the likely decision maker (are they technical or not)?
How important are partnerships?
Is this market large enough to attract other players and large financial investments?
What specifically does this person bring to the table that other candidates wouldn't?
Again, happy to chat, as I have a lot of sales/marketing experience in the tech industry that I think a lot of technical co-founders could benefit from.
- COOQIT pfpmmoreA mgmt consultant in the industry you are working in is extremely valuable. Don’t believe the losers who doubt consulting experience. No startup is going to survive without a great business/ops leader - no matter how strong your tech is.
Also - one of the most important things is if the market needs your solution and is willing to pay for it- Consultants will be able to figure it out quickly and execute on it.
Lastly, if you’ve already raised a round - even if it is seed - 45% is too much. “Co-founder” is jut a title and it varies if the first 10 or the first 2 get that title. Ignore the title. Simply do the math. Here are some things to consider:
A) how much is this guy making now - TC
B) what is the post-money valuation of your startup when he joins.
C) what is your option pool? (Typically 20-25%)
C) can you match A and B when he joins? And stay within your option pool?
D) any startup is risky - if he is not willing to risk anything then he is not worth it and will probably be a bad fit.
E) have cliffs and vesting period (typically a 4/1 vest/cliff) - that way he earns the percentage.
F) board seats at the beginning should only be 3 (ceo + main investor + independent).
G) if you don’t have any cash option (salary) then the equity will have to be more (not 45% though - that’s too high).
I’m sure there are some points I’ve missed.
I raised 2 seed rounds for my last startup and am now gearing up to raise again for my second startup. I’m also an ex consultant. Feel free to msg me if you’d like to chat - happy to help if I can.
- Twitch / Ops emoGenerally I think all cofounders should have equal split. That would be ideal. 6 months in really isn’t that much time in the grand scheme of things. If you don’t die first in a year, it will probably take you 8-10years before your startup is worth anything massive. Unless you are building this to be a flip in a few years.
Honestly, I would care less about equity than what they can bring to the table. Ask them to do something good for the business in good faith. If you two are truthful people with integrity, I wouldn’t mind asking my friends to contribute first before getting equity since I am good to my word and my friends know that.
I once wanted to work for a startup so badly that I did so without equity OR a paycheck for 10 months. I basically got a second job to pay the bills. I was with that company for another 5 years after that. That’s the kind of dedication and passion I expect at the very beginning of a new venture. Without it, more likely things end badly.
- That’s amazing, and a great story to get perspective. I also have another friend who’s put in serious work for me over the past 6 months just out of trust as well, he knows I’ll take care of him if things go well. That’s a good idea you brought up, I may try to have this MBB make a real contribution before joining
- If the guy is walking in with $10M business opportunity, then maybe (VCs take even less percentage for $10M). Otherwise he is not adding any value. Don't go with good/not good at that high percentage. Can he actually influence the business in the next 3 months and in the next 3 years?
Also, the business types know how to squeeze out the developers. Be very careful. He might steal your lunch.
Flagged by the community.
- From your comments I understand that he has industry contacts that you need in order for your product to make any money. Getting into an industry from the outside can be extremely hard and having someone on board who is well-connected with decision-makers can mean make or break. Plus, if he’s quitting his cushy job to join a startup, I’m assuming he thinks he can sell whatever you’re building.
Having said that, if you really want him to join, I’d strongly suggest negotiating. Depending on the salary you want to offer (from zero to XXXk) you can negotiate anywhere from 10% to 40% equity. 40% would mean zero salary.(assuming you’re not taking any salary yourself)
If you do the following vesting schedule you don’t even have to negotiate that hard:
Year 1: 10%
Year 2: 20%
Year 3: 30%
Year 4: 40%
with 1 year cliff
This way he’ll be happy he got a high %, and you’ll be happy that he’s in it for the long haul and you’re insured against potential underperformance. If he underperforms you’ll already know within a year or two. So even if you give away 45%, he’ll have only 13.5% by the end of year 2.
And if he brings in so much revenue by the end of year 2 that you’d still like to keep him on board, then well done!
To address equal equity split:
50/50 equity split might work in some cases but it is usually a horrible idea, especially if the second person is joining much later. The “Internet wisdom” that suggests equal split is good and fair in most cases, offers no evidence to support this claim. It probably works just as well as having two CEOs.