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Ask HN: Sweat Equity Agreements – What Works and What Doesn't

4 points by matrix ↗ HN
For those of you that have been part of (as founders, employees or investors) a start-up that had sweat equity agreements, what aspects of the agreement did you feel worked and what did not?

I'm a full-time sole founder of an early stage startup. I want to bring aboard one or two partners who will work on it part-time until cash flow is sufficient to offer a salary. A lot of advice out there talks about providing sweat equity, but sweat equity agreements seem difficult to do well.

6 comments

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gus_massa
If they are full-time "founders", they should get almost equal split (33%+33%+33%, or 40%+30+30%, not 90%+5%+5%). Also, the "standard" is a 4 years vesting scheme, with a 1 year cliff.

Some previous discussions: https://hn.algolia.com/?q=equity+plit#!/story/forever/0/equi...

arisAlexis
are you suggesting that the founder with his early MVP and idea should split equally with others that he brings on board?
tptacek
If they're working without salary, then yes.
gregcohn
It's important to strike the equity deal in such a way as to create incentives for your actual objectives.

There is a huge, huge difference between giving someone a little equity spiff in lieu of cash for professional services (e.g., a professional designer friend who helps you out with a few design elements) and giving someone an incentive to become your co-founder.

Assuming you're talking about the latter type of contributions, I would point out that in general, doing a startup is really hard. Most people can't contribute meaningfully to the success of one on an "on the side" basis.

It's kind of like a rock band maybe -- are you in for the jam session, or are you bailing early because you have somewhere else to be in the morning?

Putting it another way, the opposite of what you want to do is give people an easy way to not quit their jobs to join you f/t, instead giving them a lot of option value if you succeed without much skin in the game if you don't.

matrix
Excellent perspective, thanks. I've decided to forego having any part-time founders -- I agree, it just isn't possible to have enough skin in the game.
gregcohn
Awesome. Hope you can find one or more full-time ones! (If that's the way you're hoping to go.)