Questions

I want to reduce some dev costs for my startup AND incentivize my main developer. Any suggestions for a possible agreement? Is equity sharing needed?

My software startup will be launching in the next month or so. Thus far, I've been self funding and have 100% of the equity. However, I'm thinking about giving my main developer/project some skin in the game - in some way/shape/form. A big part of this is to alleviate dev costs for now and after the launch. Also to give him a more vested interest in the companies success for the upcoming year. He's been a valuable asset and is interested in talking through a potential agreement. Any advice for a possible type of agreement for the next year or so we could create?

5answers

For a technical co-founder, the minimum should be 33%. If you've been paying him, there is no way he should be 50/50 but how to determine the exact number is a calculation of a lot of variables that are impossible to answer without knowing more about your situation.

Most investors want to see a team in place (especially a strong technical team) so incentivizing the right person now might make a lot of sense.

What is standard is for all employees (yourself included) to be vesting over 4 years, with a one-year cliff. Given that you have invested cash, that should be treated differently (not subjected to any vesting) but your "earned" equity should be vesting just the same as this developer.

BUT, keep in mind that if you are only a month away from launching, you might be best to continue investing cash. After a product is validated (assuming this takes place), the amount of equity a developer should expect to earn could be significantly less than 33% and even single-digit percentages.

Happy to talk through the specifics of your situation in a call.


Answered 6 years ago

Is the developer outsourced? Not always giving equity boosts the moral or productivity when costs goes down. He might be interested in equity as something he earned during hard work without reducing costs of development. I think the most important question is - what type of person the main dev. is.
Maybe giving funds for dev, he might start looking something on the side waiting for right time to move to something else, with or without equity.
My advise would be to make good sense of what kind of person he is and what motivates him before making any proposals - even mentioning equity until you are 100% sure this should be put on the plate.


Answered 6 years ago

Some great answers here. I would also add that you could spend some time on https://angel.co/ to research compensation vs equity at other startups, and perhaps begin to build a community of entrepreneurs and mentors.


Answered 6 years ago

Check out the book, "Slicing Pie," by Mike Moyer. It provides a fair process for splitting equity based on actual contribution instead of arbitrary standards. You can download the first part free at http://www.slicingpie.com.


Answered 6 years ago

I would hold on to all your equity as long as you can. If you will be launching soon then you will see what the adoption in either beta or prod will be and this will affect your valuation.
Skin in the game for your dev is great but do they want skin in the game or do they just want a salary?
As a owner you cannot be thinking you are going to get paid anytime soon as every dollar you get will go right back into the business.


Answered 6 years ago

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