So, you're gonna code the whole thing, do the servers and work for sweat equity...(whatmightymousehaslearned.blogspot.com)
whatmightymousehaslearned.blogspot.com
So, you're gonna code the whole thing, do the servers and work for sweat equity...
http://whatmightymousehaslearned.blogspot.com/2008/08/so-youre-gonna-code-whole-thing-and.html
20 comments
I recently mentioned "equity" to some fellow hackers regarding a project we're thinking of starting. They bailed, calling me "Mr. Corporate"
Still, I think the outcome proves that they're not ready or not willing to go through the necessary steps to spin up a startup.
Still, I think the outcome proves that they're not ready or not willing to go through the necessary steps to spin up a startup.
Just say "partial ownership" -- they may have just been objecting to the term. If they don't care about that, then you're right, they're not right for a startup. As just a job, it's a pretty horrible job: long hours, high stress, low job security; you have to want to be a part of what's being created.
Caring about equity is one of the defining qualities of the hacker.
Why are people so silly to code and do most of the work on an application in exchange for a small equity chunk?
When starting out the business or marketing types don't bring much value unless they actually have $ to pump into the start up.
When starting out the business or marketing types don't bring much value unless they actually have $ to pump into the start up.
This is not always true. I know a serial entrepreneur who wouldn't know HTML from e-mail but he is a great salesman. Basically he has sold the project, signed the contract and has the money in the bank before the first line of code is written. I would recommend any coder I know to take a 10% share in a startup he launches in exchange for building the thing.
The key point here is that there are just as many lousy business people as there are lousy programmers. Often programmers don't know what to look for in a business guy, and end up with one of the lousy ones that are full of hot air and no substance. This goes the other way as well which is why a lot of business types end up with lousy programmers in their startup.
Being able to bridge the gap and walk both roads is worth more than gold.
The key point here is that there are just as many lousy business people as there are lousy programmers. Often programmers don't know what to look for in a business guy, and end up with one of the lousy ones that are full of hot air and no substance. This goes the other way as well which is why a lot of business types end up with lousy programmers in their startup.
Being able to bridge the gap and walk both roads is worth more than gold.
People need to learn what 83b elections are and how your company can offer them. They're good for the stock issuers and the company, and they're good for the people buying the stock.
I know it's new, but it's definitely worth investigating.
I know it's new, but it's definitely worth investigating.
That was pretty good. But there is a problem - there are ways around a lot of these things. For instance, board member - if everyone else (your partner(s), VC member on the board) vote as a bloc, your vote becomes powerless. Another example would be about access to financials - the company can just ignore your requests, and leave you to sue (which ain't cheap).
Another minor problem with the suggestions is that the equity being asked for is basically participating preferred. I don't think you are going to get this from _anyone_ unless you are actually putting cold hard cash into the venture. Founders usually don't end up with preferred stock, so I can't see an employee getting any; if you want to prevent dilution then work to keep the burn rate low so that you don't need to ask for as much money from investors and endeavor to increase the valuation of the company when it becomes necessary to seek investment.
The only remarkable thing about the equity being asked for is the anti-dilution provision. I don't think he's suggesting you ask for liquidation preference or participating preference (which wouldn't make any sense).
Anti-dillution is there to prevent unscrupulous partners from buying tons of equity (issuing new shares) at absurdly low prices just to dilute you.
Anti-dillution is there to prevent unscrupulous partners from buying tons of equity (issuing new shares) at absurdly low prices just to dilute you.
You should be as dilutable as your partners in a fair arrangement.
Yes, people can screw you. But if you have them put in writing that they WON'T screw you, if they do, you have a leg to stand on. Delivery on a promise and a promise aren't the same thing. But some people don't know what they should be getting promised, and this is a good writeup of the types of things you should look for.
Short of being $deity, I don't know how you expect to guarantee you get delivery.
Short of being $deity, I don't know how you expect to guarantee you get delivery.
That's why I said it was pretty good.
you get to ask to see the financials each quarter. you are minimising back-end pain by getting information 'installments'. if they don't give you the first quarter's results, you know somethings fishy and wcs you only blow 3-6 months of your life. knowing when to quit/walk is also a valuable skill.
This is a really great write-up. Many of us who have been in the situation of a lacking paper trail can identify greatly with this advice.
This article doesn't mention vesting at all and seems rather aggressive on the other points.
I wouldn't hire anybody who wasn't willing to vest their stock.
I wouldn't hire anybody who wasn't willing to vest their stock.
So long as it's the same deal as the other founders/partners.
Agreed...I walked away twice from a fledgling startup that wasn't willing to offer me fair terms.
The first time, they offered equity that was barely in the single digit range ;-) Neither of the other two founders are technical people, and they can't afford to hire someone, so I found this pretty laughable.
They came back with a much higher percentage, but they wouldn't agree to me getting the same vesting arrangement that they were getting / would get in a future round.
So far, they've not really gone anywhere since I walked.
The first time, they offered equity that was barely in the single digit range ;-) Neither of the other two founders are technical people, and they can't afford to hire someone, so I found this pretty laughable.
They came back with a much higher percentage, but they wouldn't agree to me getting the same vesting arrangement that they were getting / would get in a future round.
So far, they've not really gone anywhere since I walked.
If they balk, suggest that they find another code monkey while you find another biz monkey and let the market decide who ends up with the bananas.