Brett J. Fox: How Much Equity Should You Give A Cofounder You Are Paying?

Brett J. Fox
How Much Equity Should You Give A Cofounder You Are Paying?
By Brett Fox
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There was a fellow we worked with early on as a consultant. We had worked together in the past, and I knew anything we got from Martin would be upside.

He was consulting at the beginning. So I paid him as a consultant. Straight cash with no equity.

However, my goal was for Martin hopefully to become a full-time employee.

Martin kept doing more and more for us over time. Then one day Martin asked me if he could transition to being a full-time employee.

I jumped at the chance, and we brought Martin on as a full-time employee. This meant we gave Martin the going rate for salary and stock options.

Your situation seems similar to the situation I had with Martin. Here’s a simple bit of advice to guide you:
Don’t get hung up on so-called rules. Do what is right for the business.

You should sit down with your prospective cofounder and talk about your desire to make the person a cofounder. The first step is obviously to see if the person is interested.
If the person is interested, then offer the person a fair deal.

Obviously, there are two components of the compensation: salary and stock. If you are pre-funding, and you and the other cofounders are not taking salary, then your prospective cofounder shouldn’t take a salary either.

Your prospective cofounder may not be able to afford taking no salary. Then the person doesn’t become a cofounder and the person remains a contractor.

Maybe, like Martin did in my case, your prospective cofounder converts to a full-time employee later. That’s fine. Leave the decision to the person.
The one thing you shouldn’t do is penalize your prospective cofounder for being a contractor first.

The fact that the relationship has progressed to where you want this person to become a cofounder is a great development. Don’t screw it up by conforming to a so-called rule that says anyone who got paid before funding can’t be a cofounder.

For more on Martin joining read: The Real Truth About Managing Remote Teams
Do You Want To Grow Your Team?  Maybe I Can Help.  Click Here.

Picture: Depositphotos

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