Hi all, I have a quick question to ask regarding equity percentages for new employees. Basically, I had to part ways with my tech cofounder a few weeks ago due to some personal circumstances in his life . He was unable to work on the project for a really long time (quite frustrating) and therefore we both decided that is best for us to terminate our work relationship. However this particular situation in his personal life has now changed and he now wants to come back. He is a smart guy (all the tech skill and experience I need for MVP) and he has been always honest with me so on personal level we are all good. However I am much more reserved now when it comes to work commitments and I am not really happy with the idea of appointing him as a cofounder again because he won't be able to share the same amount of risk as I do. He is happy with just being employee but I am not really sure what will be an adequate total percentage of equity I should offer? I am thinking of vesting schedule based on milestones rather than timing and I am also planning to attract new developers in the near future so he won't be the only tech person working on the project. Many thanks in advance for your thoughts and guidance.
I think you have to ask yourself important questions...what is he bringing, how much of what he is bringing is part of your company...etc. I like your idea of deliverables. I feel for you because I have had partners in the past that did not carry their weight. Other thing is are you paying him any up front salary. There are different methods for splitting up equity..none are perfect.
When he was "unable to work on the project"...
1. What was he doing instead? (This shows his true priorities.)
2. How long was he unproductive for? (How much did it set you back.)
3. Most importantly, did he tell you that he needed to take a break?
Remember this is not a game. You take your business seriously and anyone that will be part of your start-up team needs to realize that this is serious stuff; even if they are volunteering their time. If they are a cofounder, they are ultimately working for possible stock options. Hold them accountable like any other job would. I think you know what you need to do here.
If he simply flaked out, you cannot afford to have people like that be part of your start-up. However, if he told you that he couldn't work on your project right now, I hope he specified how long. Also, hopefully, he gave you a couple of weeks notice (like a real job). In that case, I would seriously consider taking him back.
Now there are exceptions to every rule. Perhaps he felt you knew he was gone. Perhaps it was for a good reason. Give him the benefit of the doubt. By the way, if he did flake out, but for good reason, then once again weigh everything carefully. Only let them back if they agree to be productive, then wait to see if they are productive this time around. Sometimes a second chance is prudent. If this becomes a repeat offense, drop them. Not everyone is cut-out to be a founder or even a contributor while a company is in start-up mode.
Once you have weighed everything then execute a fair and definitive decision.
Some additional thoughts on the matter:
Ultimately you need people that can work self-directed and remotely for little to no pay. Find out the things that motivate them to work for your company, and remind of them of those reasons. Also, for a startup you need people that have good judgement in several areas, and above average communication skills. Finally, the synergy of founding members needs to be as perfect as possible.
The "fair" share depends on the company valuation and each person´s contribution, so it´s hard to say how much it is.
As you bring in other people in the future and/or need additional funding I suggest to construct a cap table to see how your equity dilutes over time (which anti-dilution provision to you agree upon?) and whether or not you are happy with it in the long run.
If you are unsure in the beginning you may also consider cliffs. Though as I said it is hard to give more advice without having further details.