Trying to determine a fair equity split.
- Person A started the business and worked part time for 1 year and then full time for another 6 months.
- During this time a functional product has been created. The product is MVP quality, that is not maintainable over long term.
- There was an initial traction which resonated with an investor and some initial funding has been secured.
- For the past 1 year there is a monthly re-occurring revenue. Average of 600$ per month. Revenue is not growing.
- Even though the idea can be considered as validated, as there is traction with the market, the business is still in the search of product/market fit, with series of experiments that need to be executed.
- A has built promising relationships with customers (ready to help with experiments)
- A has built a relationship with a few potential investors
- A has built a relationship with industry advisors
- A has few contract engineers currently working on the product maintenance and development. Expenses covered in cash
- A feels long term cash outlay is not sustainable and wants to get someone that can offer sweat equity instead
- Person B - the technical co-founder is about to join to help with these experiments as well as start building a solid product from the existing MVP.
What equity share should be given to B?
- B is joining full time.
- B is not asking for any salary. B wants maximum equity.
- A is looking for exactly the kind of person that is looking to join without asking any salary. After interviewing dozen candidates, A feels that B is a really good fit for the company.
Current investor carries a convertible note at 1 mil cap with 55k invested so far.
Another 2% has been given away to advisors.
A holds 98% equity (minus the convertible note)
Current thoughts for getting the B onboard is
Vesting over 4 years
45% equity seems very generous. I think it's up to how much Person B is committed. If person B is equally committed (which never happens), then that split might be fair.