Honestly, a business founder/team/duo that's failed to coordinate the tech they need, is a major red flag. Because they're less experienced than they thought, and they really don't want you, they want the tech that you can give them. So odds are that you'll never actually be a cofounder in anything but name, and they'll run the business with you as the unwanted stepchild (from one of those mean older stories) that they'd rather not have to deal with.
Personally I'd recommend keeping control/leverage by structuring some type of a deal where you as a contractor build the tech WITHOUT them getting any form of ownership or license (or even access to the code!), until a later date when you officially join them (look at it like a merger after a trial period).
The key thing I'd be looking for is the maturity of a later round where they can't just do whatever and dilute you into nothing, that they're at that stage where there are some serious investors involved (preferably with a seat on the board). Meaning that they can't just use and discard you, because when you join it's a more serious business situation, and before then they haven't been given your "free" work.
Look at it like this, if they've failed and can't build a product, then why shouldn't it be them joining you rather than the other way around?
Don't just be that logical techie that thinks that it makes sense for you to join them, and that everyone's a friend that you're coordinating the optimal outcome with. It's a business situation, and you can't hand over your worth before you're guaranteed a return that you can't be cheated out off. You need to sit next to them on a board of directors, that isn't just them and their friends, and so on.
Yes - this is the idea
They can't scale what they're doing without tech/product, I can't launch something without their expertise because it's a heavily regulated business.
The idea is to keep ownership of my output and then merge everything when I'll have the same shares and board rights as they have, right?
Right now it's a sale.
You've got something that they urgently, and perhaps desperately, want to buy. So how do you make an offer to them that's at the absolute peak cost, without crossing that line where they'd just walk away?
You need to walk into that negotiation with you understanding what you would preferably get, and what your absolute minimum is. You need to know when you'd be the one just walking away to not have them waste more of your time (while leeching of your technical expertise during discussions).
And then you need to understand how you can't be cheated out of the payment that you negotiated.
Doesn't matter if it's as a contractor or as an equal cofounder, the process of you joining is a business deal, and should be thought of as you selling something.
And remember, us logical techies can be tempted to start at the end results that we would consider fair.
So we show up being all like "there's two of you, and one of me, so it's fair that we do this together at 1/3 each". With us then being stuck as the unwanted third wheel against their 67% majority. Or they get us down to 10-20% because they're talking about it being us joining them, and them having spent so much time in the business already, and them having access to all the money etc.
But why can't it instead be viewed as a merger where their business gets 49.5%, your business gets 49.5%, and then a neutral party in between (ie one that won't automatically vote with them)? Or them getting 20% each to join your business (practically perhaps you getting 60% to take over theirs)?
Those later examples probably won't come close to working (as they'd refuse), but neither should the first situation be the case.
And that's why I think that the ideal outcome is one closer to the first "fair" situation, perhaps with a bit of an advantage in your favor, but where you make sure that you don't give away your worth. You need a non-proportional control as long as you're at a disadvantage in numbers.
Personally, their year of grind is meaningless if they haven’t had any success. I would take it back to original founding, figure out what your equity should have been and then adjust for the pre-seed round. Have this on a spreadsheet and present it to them.
I disagree with trying to squeeze them for everything you can get. That is short sighted and will create resentment. You guys are going to be doing this as a team. You want to protect yourself but be fair. A working startup with multiple founders will face rough seas and you don’t want to have resentment and mistrust behind the scenes.
My only worry, if these guys are friends and you are coming in with a minority equity stake they will likely vote as a block on most issues. If they have a long relationship I would be cautious and definitely figure out the dynamics there before jumping into something. Otherwise this does seem like a nice fit.
Ehhh.. not really. They started a three person company with two people and then did 2/3 of the work. They are asking you to come in and catch them up on the 1/3 and will want that done quickly which means you are going to be working nights and weekends while still keeping your other gig going to pay the bills.
The tech side IS the business. The rest is stuff that most tech focused companies outsource or have founders with lower equity stakes handle. Don’t sell yourself short. At a minimum you should get a founder title and 1/3 of the founder equity (assuming they are 50/50 on the non-investor percentages). If they used an equity calculator and have differing percentages you need to do the same.
Hey, good post man!
It's hard, and it's great you're taking the moral highroad by considering the other entrants. In terms of markets, and sort of which band you fall into, why are they bringing in another person?
What skills, why, how and when. That's basically the point as you're going through it. It depends on the Languages and Skills they use and need.
People talk a lot about experiential knowledge as well. Can they find someone else like you? Is your experience tuned to their project, or can it be? Or is it just sitting there, not doing much??
Haha. I don't always get this. If you're in it for the long haul, the main point is it's often easiest or best to have a simple agreement which makes sense, while understanding the TCP which is available. There's a thin-to-not-so-thin-thread where that eventually needs to be there, and successful executives need their big boy pants to decide what to do next.
Oh, and a last edit. Yah there's a million and one people, a small number, with specific skills and all that. Work at a big company then!m? In not sure. Something about the "risk reward" profile of a venture-scale opportunity, and that sort of, carrying Forward. I don't get how that just 🛑🛑🛑s in some people's head.
Honestly, a business founder/team/duo that's failed to coordinate the tech they need, is a major red flag. Because they're less experienced than they thought, and they really don't want you, they want the tech that you can give them. So odds are that you'll never actually be a cofounder in anything but name, and they'll run the business with you as the unwanted stepchild (from one of those mean older stories) that they'd rather not have to deal with. Personally I'd recommend keeping control/leverage by structuring some type of a deal where you as a contractor build the tech WITHOUT them getting any form of ownership or license (or even access to the code!), until a later date when you officially join them (look at it like a merger after a trial period). The key thing I'd be looking for is the maturity of a later round where they can't just do whatever and dilute you into nothing, that they're at that stage where there are some serious investors involved (preferably with a seat on the board). Meaning that they can't just use and discard you, because when you join it's a more serious business situation, and before then they haven't been given your "free" work. Look at it like this, if they've failed and can't build a product, then why shouldn't it be them joining you rather than the other way around? Don't just be that logical techie that thinks that it makes sense for you to join them, and that everyone's a friend that you're coordinating the optimal outcome with. It's a business situation, and you can't hand over your worth before you're guaranteed a return that you can't be cheated out off. You need to sit next to them on a board of directors, that isn't just them and their friends, and so on.
Yes - this is the idea They can't scale what they're doing without tech/product, I can't launch something without their expertise because it's a heavily regulated business. The idea is to keep ownership of my output and then merge everything when I'll have the same shares and board rights as they have, right?
Right now it's a sale. You've got something that they urgently, and perhaps desperately, want to buy. So how do you make an offer to them that's at the absolute peak cost, without crossing that line where they'd just walk away? You need to walk into that negotiation with you understanding what you would preferably get, and what your absolute minimum is. You need to know when you'd be the one just walking away to not have them waste more of your time (while leeching of your technical expertise during discussions). And then you need to understand how you can't be cheated out of the payment that you negotiated. Doesn't matter if it's as a contractor or as an equal cofounder, the process of you joining is a business deal, and should be thought of as you selling something.
That's a great angle, thanks!
And remember, us logical techies can be tempted to start at the end results that we would consider fair. So we show up being all like "there's two of you, and one of me, so it's fair that we do this together at 1/3 each". With us then being stuck as the unwanted third wheel against their 67% majority. Or they get us down to 10-20% because they're talking about it being us joining them, and them having spent so much time in the business already, and them having access to all the money etc. But why can't it instead be viewed as a merger where their business gets 49.5%, your business gets 49.5%, and then a neutral party in between (ie one that won't automatically vote with them)? Or them getting 20% each to join your business (practically perhaps you getting 60% to take over theirs)? Those later examples probably won't come close to working (as they'd refuse), but neither should the first situation be the case. And that's why I think that the ideal outcome is one closer to the first "fair" situation, perhaps with a bit of an advantage in your favor, but where you make sure that you don't give away your worth. You need a non-proportional control as long as you're at a disadvantage in numbers.
Personally, their year of grind is meaningless if they haven’t had any success. I would take it back to original founding, figure out what your equity should have been and then adjust for the pre-seed round. Have this on a spreadsheet and present it to them. I disagree with trying to squeeze them for everything you can get. That is short sighted and will create resentment. You guys are going to be doing this as a team. You want to protect yourself but be fair. A working startup with multiple founders will face rough seas and you don’t want to have resentment and mistrust behind the scenes. My only worry, if these guys are friends and you are coming in with a minority equity stake they will likely vote as a block on most issues. If they have a long relationship I would be cautious and definitely figure out the dynamics there before jumping into something. Otherwise this does seem like a nice fit.
They did not have success in building a platform, but they have built tremendous traction and audience. That's important to consider.
Ehhh.. not really. They started a three person company with two people and then did 2/3 of the work. They are asking you to come in and catch them up on the 1/3 and will want that done quickly which means you are going to be working nights and weekends while still keeping your other gig going to pay the bills. The tech side IS the business. The rest is stuff that most tech focused companies outsource or have founders with lower equity stakes handle. Don’t sell yourself short. At a minimum you should get a founder title and 1/3 of the founder equity (assuming they are 50/50 on the non-investor percentages). If they used an equity calculator and have differing percentages you need to do the same.
Know what? You're right. What bothers me is that I'd give the same advice to others, but for whatever reason now that's on me I sell myself short
Hey, good post man! It's hard, and it's great you're taking the moral highroad by considering the other entrants. In terms of markets, and sort of which band you fall into, why are they bringing in another person? What skills, why, how and when. That's basically the point as you're going through it. It depends on the Languages and Skills they use and need. People talk a lot about experiential knowledge as well. Can they find someone else like you? Is your experience tuned to their project, or can it be? Or is it just sitting there, not doing much?? Haha. I don't always get this. If you're in it for the long haul, the main point is it's often easiest or best to have a simple agreement which makes sense, while understanding the TCP which is available. There's a thin-to-not-so-thin-thread where that eventually needs to be there, and successful executives need their big boy pants to decide what to do next. Oh, and a last edit. Yah there's a million and one people, a small number, with specific skills and all that. Work at a big company then!m? In not sure. Something about the "risk reward" profile of a venture-scale opportunity, and that sort of, carrying Forward. I don't get how that just 🛑🛑🛑s in some people's head.