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Ask HN: Joining as 3rd co-founder, seeking advice

4 points by throwaway011235 ↗ HN
I am a somewhat specialized engineer, currently working at a leading startup in the field.

A couple of months ago I was approached by an entrepreneur and his protege. They've been working together for a couple of years, and have just started a new startup in the same field.

They've asked me to join as technical co-founder with 20% equity, but are reluctant to give me the third board seat. The entrepreneur will be the chairman of the board, and the protege will be the CEO.

I've tried to start companies in the past; while they were commercially unsuccessful, I did learn a lot about customer discovery and product development. This entrepreneur has previously built a company to nine figures in revenue and IPO, and I think the protege would make a good CEO.

While doing my diligence, however, I happened to speak with the founder of another company that this entrepreneur was involved in at the early stages as an investor. This founder advised me not to work with this person, but wouldn't tell me why.

I'm really excited about building the technology, and I believe they could sell it (they have a large network of potential customers), but I'm a bit worried that something may be amiss.

Therefore, I have the following questions:

1) Does this seem like a fair arrangement? 2) Is there anything that I'm missing and/or that I should be worried about? 3) What other advice can you give me?

Thanks HN!

9 comments

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dmarlow
Equity seems a bit low. I'd push for equal shares across the board. Is this fully diluted percentage?

Try to get to know them better and form your own opinions of them.

notahacker
By the sounds of it the first thing you might be missing is how good your current role might be...

You're clearly not being considered as an equal partner, which depending on what you're considering walking away from, whether the others have already put funds and sweat equity into the project and how relatively unique your respective talents actually are (and when/if you can reasonably expect to start earning a decent salary) might be acceptable or might not. You might be able to negotiate the equity percentage but probably not that starting assumption. The job title split also sounds suspiciously like the "chairman" might not be doing as much day to day work as you and the CEO, though again in some circumstances he might be backing it heavily enough for that not to matter. (It's probably difficult for you to provide much more detail without it being identifying though)

Seems perfectly reasonable to ask prospective cofounders about their experiences with all the startups they've previously founded or invested in, and possible his answers on that (or even just the tone of how he talks about people he's worked with and backed in the past) could be revealing, particularly if, unbeknownst to him, what you're really trying to find out is why someone he invested in thinks you should steer clear.

JSeymourATL
> This founder advised me not to work with this person, but wouldn't tell me why.

This could be a Giant Red Flag, or simple personality clash.

If you can, follow-up with the Founder for a confidential 1:1.

brudgers
[random internet remarks]

  20% equity != 20% control
Taking the offer means accepting that the business people don't rate you as someone worth sharing business control. That may or may not mean that you are someone worth sharing business control...i.e. their assessment may be inaccurate. It may be an intolerable blow to your ego. But that's the world described in your question (there might be more to it, but that's all I've got).

If the offer comes with a market rate salary, it smells like an above average deal and probably reflects a board that doesn't want you distracted. It also reflects a board that has adequately capitalized the company for operations (and that's the metric of the "business person" in a company). A market rate salary is plausible compensation for the risk inherent in not having business control. If the salary is below market rate, it smells closer to the "two business 'guys' hire a programmer" end of the developer-as-entrepreneur risk spectrum.

There's nothing amiss. It boils down to whether or not you trust the two partners, your objectives, your current career and economic position, and your assessment of the risk. Good luck.

relaunched
A known quantity is offering you a 20% stake, that's huge. However, they aren't offering you control; those seem like the terms. Previous success is correlated with future success - so, the opportunity is sounds great. If you can't live with that, don't do it.

The terms are great, but it doesn't sound like what you want. Realistically, a board seat is a huge ask, and 3 people from the company on the board, isn't typical, especially at this stage.

treis
>are reluctant to give me the third board seat.

I wouldn't be too hung up on this. If push comes to shove it sounds like you'd lose every vote 2 to 1 anyways.

muzani
On the other hand, it seems unwise for them to not give OP a vote, because it means no tiebreaker vote. Unless they're planning to give it to investors later which could be worse.
prachess
Yes I would too id make sure id have a say in the company or else you are really just an unpaid employee at 20%
rahimnathwani
"Is there anything that I'm missing and/or that I should be worried about?"

- Does the company already have any assets (tangible or intangible) or any revenue? (This would help you to value what the existing founders have already done.)

- How will all founders' shares vest over time? (see https://avc.com/2018/03/founder-vesting/ for a sense of what can go wrong if founders' shares don't vest)

- Will any/all of you be drawing a salary? At a discount to market? (market salary + 20% equity is very different from zero salary + 20% equity).

- Are there different classes of shares, or just one class? (i.e. are the shares you will get on the same footing as the shares the existing founders have)

"This entrepreneur has previously built a company to nine figures in revenue and IPO"

Can you talk to any co-founders or very early employees of that company? Did they get rich together?