Questions

What is a reasonable equity package to offer an executive partner/co-founder if your business is already established?

As a solo-founder I’ve successfully developed a product and gained market traction. However, juggling all the responsibilities that go along with being founder all myself has been challenging to say the least. Having a partner/co-founder onboard to share the workload would really help to improve how the business operates and accelerate growth. All of the methods I’ve found for estimating founder equity stake all assume that both partners join/start the business at relatively the same time which obviously is not the case here.

1answers

Hi
First of all, well done for successfully developing a product/business and gaining market traction!
There are various 'models' that you can use to estimate how many shares/percentages your new partner should get. These include (a) his/her investment in time and/or money, (b) the current + potential value of the company, (c) the time and/or money that you as the original founder already put in and various other models. That said, at the end of the day, it's all about value and psychology (both side's feelings).

Between the lines (of your question), it is easy to tell that you do not feel that a new partner should receive 50% of the business due to the time that you've already invested, and that is understandable. That said, you yourself understand that you do need an additional founder if you won't to grow the business without overworking yourself. Also, it is better to own (for example) 50% in a business worth $1,000,000, than 90% in a business worth $500,000. I am not saying that you should offer 50%, I'm merely stating that if the partner will increase the size/profitability of your business, your overall enrichment will be bigger - regardless of how many shares you give him/her.

Bottom line:
1. It all really depends on how much value they are giving you (not only financial, sometimes even just moral support goes a long way). Some founder's 'should' get 5%, some should get 50% or more.
2. Ask the potential partner how much shares they want (before you name a number).
3. Have an open conversation with them in regards to each of your expectations.
4. Use a vesting (or preferably reverse vesting) mechanism - meaning that the founder receives his shares gradually, based on the time that goes by (during which he fulfills his obligations) and/or milestones reached.

I've successfully helped over 300 entrepreneurs and would be happy to help you. After scheduling a call, be sure to please send me some background information so that I can prepare before - thus giving you maximum value for your money during the call itself. See the great reviews I got.


Answered 9 months ago

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