At the beginning it seems like a great deal. I'll get to work closely with three serial entrepreneurs and build a startup with them. They will bring a clear playbook and help with the Go To Market (I'm an engineer so that's my weakness)
But after a few months, it's very clear that I'll be doing everything in the startup. Initially I thought they'll manage the entire go to market and sales, but up until now I had to do everything. Their contribution is providing advice when needed and having a 2 hour meeting with me every week to discuss everything.
While the time with them is very helpful, I can't shake the feeling that if I'm doing 99% of the work + came up with the idea, I'm better of finding a co-founder and start my own company. Right now I get only 10% equity. What do you think?
Here are the pros:
* Salary from the first day ($150k/year while I was making $300k/year before that)
* Raise funding easily ($2.85M at day 1) and they seem to be able to raise future rounds with ease (after all they are VC)
* Get to do my dream role - found a startup - with lower risk (salary + help)
* Work with 3 incredible guys that I trust and that co-founded several successful companies (as founders not investors).
* Their advice is very helpful and I get a lot of freedom. They do not try to tell me what to do, but rather support my journey.
* I get 10% equity post the Seed dilution
* I attain very valuable experience and learn a lot
Cons:
* Only 10% while I'm doing most of the work.
* Not the CEO even though I'm doing the CEO job.
* No control over the company (they can fire me at any time).
* Their investment time-wise is not huge.
I think it's a good deal. It's not great, but good. You still keep half of your salary, got funding right from the start, can develop/build the company, learn a lot, and have someone to ask for advise which you shouldn't underestimate, and probably will have no trouble raising a second round with their help.
With that, you will build value much faster than a "normal" start-up founder, which doesn't have the connections to raise money, doesn't have the money to hire employees, etc... I think it's safe to assume that you win at least 1 year. This will increase your company value and thus make your 10% now worth much more than someone having 100% and is right at the start.
If all fails, you only lost half of your salary (no debts creating the company), but gained all the experience and are much more fundable for a new startup.
For your situation if they'd be more engaged I'd suggest equal equity split what you describe sounds like normal investment albeit with fairly hands on investor. They should be getting 20%, 30% if you feel generous.
If you're not raising money, you're not doing the CEO job. My guess is they're willing to back you but see that you don't have the business experience to be CEO (and if you're the CEO, you're not going to be doing the engineering work you need to be doing to build the company). In this scenario is the single fund providing all of the $2.85MM? Is there a board? Who does the VC/CEO answer to? Do they see their role as interim (i.e. support you to a point where you could become CEO, or get the company going until it can bring in a salaried CEO)? Or permanent?
Do you want to be the CEO? or the CTO?
I'm not saying it's perfect, but a scenario where someone is bankrolling you and providing a CEO to handle the CEO b.s. while you build the company is also not that bad given the current funding environment. I'd look for some formal role definitions both on personnel as well as business (i.e. does the incubator provide basic business resources like HR assistance, payroll assistance, so that you're not burning precious seed $$ on that?).
Ask them to put in some protections for you in writing.
I mean, it sounds like they want to build the company around you and offload the crappy bureaucracy of running a company that you admittedly don't have experience with. Yes, they absolutely get a chunk of the upside out of it, but you get to focus on building the product. 10% equity seems low but they’re bringing the seed round in to fund the company and you’re getting a decent base salary. I'd ask for accelerated vesting and something to protect your equity from dilution through at least a Series A.
Do you actually trust them? It sounds like they haven't lived up to what you feel was promised in terms of helping with the GTM and getting the business off the ground.
You gave up control very early for money. Who knows if it was a good decision or not, but if you aren't at peace with the deal you made that is a very shaky foundation to be starting on.
> While the time with them is very helpful, I can't shake the feeling that if I'm doing 99% of the work + came up with the idea, I'm better of finding a co-founder and start my own company.
Since you are not CEO, presumably they own your IP - so your options may be limited with striking out on your own.
I am too technical, started a startup with 2 amazing co-founders and I now own 10% of the company. The key difference is that for that amount of equity, I’m only responsible for the technical side of the business. Also, because the company is more of a service than a product, having that amount of equity makes sense since my co-founders are doing all of the heavy lifting.
Taking this example into account, it appears to me that the situation in your case should be the opposite. Given the amount of work and responsibilities you have, it seems like you should own the majority of the equity. It is also beneficial for your co-founders to give you more equity because, if they see that you are running the company well now, the equity split will motivate you to stick with the company for years to create value, regardless of the amount of shenanigans.
I see making you the minority shareholder as a great risk - the further you progress, the more difficult it becomes. If the startup works, the time commitment is extremely high, and constantly asking yourself, “is this worth all this effort?" won’t help. If they are concerned about giving up equity, they can use safety mechanisms such as vesting and a cliff, the typical get out of jail free card. Giving you this much equity does not create long-term motivation to stay with your startup, especially if things aren't going well. The fact that they own more companies and are still trying to pull off such a deal makes me wonder if they are trying to capitalise on your excitement about living your dream.
Because I don't know the entire picture, the best thing I can think of is to try to have a conversation with your co-founders and build a case for why you should have more equity. It will also help if you know and can afford a business advisor, as they may be very argumentative in their favour given their experience.
This is simply my opinion as a CEO - I am not attempting to persuade you to do anything. Try to think about this for yourself, making sure that you are happy with the equity split and that it motivates you (and your co-founders) to work on your startup for a long period of time. As in my example earlier, the split can be different from equal, but this is unusual. Try not to make a short term decision, but think long term!
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