Fintech start up, found a technical cofounder, best structures to start a relationship?

I was looking for a smart contract / block chain co-founder. While I have an option, I have found someone accomplished with back ends, data layers and AWS that is interested to support me and together we may have some momentum. I am interested to ask people what offerings they have made to co-founders? I have been working on this for some time, concept is mine, backend is only one part of a bigger system —albeit important—. Should I offer equity, how much? What about convertible notes or other offerings. Greatly appreciate advise, success stories and what not to dos.
Thanks in advance.

7 Likes

Hard to get a cofounder without equity. Without equity it’s “employee.”

7 Likes

@MichaelYoffe, I understand convertible notes could be offered. If equity, how much. Is there a structure to motivate and share success such as with a “cliff” or performance mandates to vest shares overtime? Looking to learn an offering that makes sense and structure beyond just “equity.” Thank you kindly.

7 Likes

@MarioRomero, It’s going to depend on your cofounder. Saying the backend is only a backend is going to turn off a lot of programmers. Kinda like saying Tom Brady is only a quarterback. If you have the right co-founder who knows how to get things done and drives it through and creates maintainable code and solves all the problems you don’t even know enough to know they exist… he’s probably worth whatever he asks for. Was Paul Allen worth 40% of Microsoft or whatever he got? In retrospect probably not. Did it still work out really well for Bill Gates? Absolutely.

7 Likes

@MichaelYoffe, I completely understand where you are coming from. Your feedback makes sense. To add clarification… I am working with someone in the AI ML space and their solution is an important piece of the puzzle. Working with someone in automated marketing. Have a team in Pakistan building a customer tool. Paying a team in Poland for UI. Have an intern. So, the back end and all this guy brings to the table is extremely important. I have been working the concept for 5 years and am brining it together. He and his team are a very important part of the puzzle but there are more puzzle pieces than two. Tom Brady (originally from Boston) is nothing without the line, guys that can go deep, a defense and a coach. So, do you give Brady 50%? Even Brady has taken less at times to get Gronk on board. How do you make room for a full team? Also, this guy has his own existing business/start up so should I also get some piece if that? It will also grow as we grow.

6 Likes

Understood. I can’t answer what you should do in your specific case. General advice would be: be generous to those who grow you. If you can reward them what they feel they are worth, that’s probably going to make them the best partners. But make sure you keep majority control if it’s your vision.

6 Likes

Nearly all equity arrangements (including original founders) have a vesting cliff. Mine is the standard SV one: 25% after the first year and then monthly vestments for the next 36 months.

You should 100% do this for yourself (some investors will require it) and do so for him. If he’s been involved in early-stage startups before, he’ll expect it and may even view it as a red flag if there is no vesting.

5 Likes

@DamianMarshall, Now this is the kind of advice I have been looking for. Thank you kindly. Any chance you are up for a catch up by phone? This is the direction I need to head. Also, there are more players, and it is time to solidify my relationship with them as well. Appreciate your time and guidance. Thank you

5 Likes

There are more pieces to the puzzle though. Have 4 - 5 people/teams working on solutions that string together. It wouldn’t be possible to give him 50% without finding other people over and shooting myself in the foot. The agreement has to be more complex than this. Also, he has an existing business/startup so should I also not get a piece of this?

5 Likes

In terms of the actual equity split, there are 100 ways to skin the cat and arguments to be made in either direction.

Regardless of what role you guys agree on (e.g., “Tech Lead” / “Founding Engineer” with 5 - 20%, “Technical Cofounder” / “CTO” with closer to 50%), I highly recommend starting with a contract role where you pay him out of pocket for ~3-6 weeks

It may seem expensive now but, unless I’m missing something, you guys don’t know each other well at all. Put in a crass way, “Would you get married to someone after the first date?”.

Figure out ways to spend as much time together as possible before discussing any equity splits or compensation arrangements. Normally the easiest way to do that outside of coffees / drinks / walks is to pay him an hourly rate to work with you.

5 Likes

Think about it from the perspective of the cofounder…
Why should they join and do all this work for you?
If they could get a job paying 200k/year with their skillset…
Why should they forgo that to work with you?

4 Likes

A couple of points from me:

  1. Do not go 50/50, Maximum 51/49.
  2. Ensure both parties drop capital into the business from the outset so there is some real stick in the game outside of just business acumen.
  3. Make sure you get a lawyer to draw up an owner’s agreement and you understand good leaver/bad leaver.
  4. Use NDAs before discussions.
  5. Most Importantly, vet the partner in great detail, speak with contacts that have worked with him/her, deep dive their history etc. Having a bad partner is a nightmare.
3 Likes

I think you already have answer to these questions, if you ask that question to yourself. If you were the backend person, will you join for convertible notes or will you need come equity in the company and / or come salary?

The percentage of equity is going to differ from person-to-person IMO. But either ways, I think you will not be able to find someone to do the work without offering a good salary or equity that pleases the person. You may not get a solid answer from this thread.

2 Likes

Don’t fall into the trap of overvaluing your ideas. Remember that ideas are cheap, real value comes from the four c’s: cash, contracts, customers, and code.

1 Like

@AmyWalker, This is great advice. Problem is backend is just one need. I have to have 8 - 10 partners and leave room for VCs to think investment is attractive. So, it has to be slices of the pie and not half of the pie. Working hard to figure it all out while trying to finish off MVP and work on slide deck/test the investment market.

@MarioRomero, When you’re just starting, the pie is just you and your cofounder. When you bring in partners and investment, you make that pie bigger. Yeah, your piece gets smaller, but the pie overall is bigger.

With my company, my co-founder and I own just over 65% at this point, so yeah, percentage wise, it’s a lot smaller, but value-wise, it’s worth tremendously more than it was when we started it.

Another trap that founders fall into is trying to plan out the whole cap table when they start the company. You plan for what you need right now, and what you need to get to your next fundraising event. Then you re-evaluate.

What I’ve seen a lot of companies do, and what all the companies I advise do, is to start with 10m shares, set aside 2m for an employee pool, split up the other 8m between the founders as is fair. The 2m in the employee pool then should mostly go to the advisors and equity-only hires that you’ll need to have to get you to your first priced round. When you get there, you top up that employee pool.

You can always add more equity to your captable, and award more to yourself if it’s truly warranted. If you don’t have a good partnership with your cofounder, then you won’t need to, because you won’t make it very far :wink:

As an aside, what do you mean you’ll need 8-10 partners, like 8-10 co-founders? Or are you talking advisors and early-stage, equity-only contractors and/or employees.

1 Like

I have a team of 2 (separate company) doing automated marketing, I have a data science team of 2 I am trying to bring on, a back-end guy, an intern, a team in Pakistan building a vendor tool. I am looking to source a block chain co-founder or partner. So, looking at around 8 equity people or partnerships to string together the platform that makes a difference. At the moment exploring equity offering to the back-end guy who brings also more to the table than just that. And the Data Science team.

In what ways do you advise people and are you open to discussing?