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Ask HN: What is a good equity split in my case

4 points by _pygv ↗ HN
Albert starts hacking on a prototype project on june 2018. He works full-time on it. In march 2020, the project looks promising (made ~3000 usd) and he convinces Bob, a random guy he met on reddit, to join him. With the help of Bob, things take off. They invest 40k of their own savings in the project. From march to december 2020, average growth is about 100% per month. In July, Carl joins the project. In January 2021, growth slows down to about 30% per month, and total profit is 20M. In march 2021, Dan joins the project.

All of Albert, Bob, Carl and Dan work full time and plan to continue working for a long time on the project and consider themselves cofounders.

The project is a proprietary trading algorithm whose future profits are uncertain depending on competition and market conditions. Their plan is to scale up as a proprietary trading firm.

What would be a fair equity split between A, B, C, and D ?

8 comments

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nnext
It depends on whose skill set in most valuable in terms of business growth. The value of each founder depends on company stage. Technical generalist tend to be more valuable at the beginning of a company’s lifetime since they can hack together a minimum viable product. As the company matures, a stable hand who is able to make sure the product doesn’t go down is probably more stable. Based on the information your provided it would be hard to tell what your individual skills are and consequently what you bring to the table.
uberman
What do Carl and Dan have at risk? It looks like the first two who have 40k of their own money at risk should have the lion's share.

My best guess is 50 35 10 5. Maybe 51 41 4 4. Something in that range.

It could be radically different though is we knew more about what each person had at risk. For example, are any taking less or no salary?

_pygv
So far, no one took salary. Everyone would start having similar salaries at the same time
uberman
Since no one has taken a salary (even though forgone salary is not really something at risk) I believe it would merit factoring it in.

I would say: 57 37 5 1 potentially seems appropriate to me.

A and B having real money at risk get the lion's share and everyone gets some credit proportional to the time they have volunteered to get the thing going.

While it is all still on paper, you might also want to work out who's pot future stock incentives come out of. Is it A only or A and B equally or proportionately? Alternatively, do you carve out a block now for such purposes perhaps based on all 4 contributing proportionately to the block.

_pygv
Thank for you opinion. Factoring in the fact that Dan is quitting his current job at a big FANG with total comp in the 400-500k range (this creates a higher equity cost for him). Most of us used to be software engineers, but with nowhere near that kind of comp. How much this consideration would that impact the equity?
NonEUCitizen
Why would they bring on Dan in March 2021 as a cofounder instead of as an employee?
uberman
I'm not sure the suggestion is call them a co-founder, this is a question about equity. I think it is likely VERY common for early stage employees to get at least some equity.