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My advice from little experience is to split shares equally three ways rather than based on number of hours. The startup should be everyones primary focus regardless of hours logged. If your business guy swings a huge contract that makes your business but has put in fewer hours does he still get a small percentage of the business?

Secondly I would vest all shares. After your trial if you decide it's all likely to work create a vesting schedule that starts after 1 year and progresses until the company is equally shared between the three of you. You might also have acceleration clauses in the case of selling the company or other milestones.

2 comments

This comment pretty much said what I was going to say. Definitely do the trial period. Vesting shares. Don't measure hours, it just leads to a mess. You don't care about hours, anyways - you care about results.

Okay, actually, a quick story - I was running a business where we had maybe 20 hours of mindless busywork each month that could EASILY be outsourced for very cheap. It would've cost $400/month or maybe less to outsource it. I kept trying to outsource/automate/remove this stuff, but my partner at the time wanted to have max cash in the business and insisted on doing it. But then he'd call me upset that he put in more hours that week, even though I was directly accounting for 70% of the business' sales, and had some responsibility/involvement for the other 30%.

Long story short - don't compensate hours for founders, or people will fight to keep their fiefdoms of packing boxes and bringing them to the post office, which is a totally useless waste of time if you could be making hundreds/thousands of dollars with that time and paying someone $20 to pack boxes instead.

(Edit: If you're not profitable and have no money, okay, pack boxes. We were making money, time spent on customer acquisition would've been MUCH better spent than extremely rote mindless busywork that anyone with an IQ of 60 and two working hands could do)

Also - interview A LOT. Even with the trial, you want to be doing at least three interviews, and maybe more like 10. Do them on a few separate days. Ask hard questions. After your favorite has been doing well, go to a bar or somewhere super informal and just chat about life, try to get perspective on his/her goals, ideas, thoughts on lots of stuff. Make it as informal as possible and you'll probably learn more there than you do in the formal interviews. But yeah, interview A LOT, I think it'd be hard to have too many interviews for such an important role when you're already deep into.

Thanks, that's a valuable advice! And I fully agree that the raw numbers of hours is not a very good metric.

But, from a pessimistic perspective, I'm unsure if 1 or 2 months trial will be enough to be sure about that person, and to make such a strong commitment. One worst-case scenario could be that the third co-founder works passionately on the project for 4 or 6 months, and then for some reason looses interest / motivation / time.

If you have a 4-year vesting schedule with a one-year cliff, then anyone who walks away before 12 months have passed leaves empty-handed. Anyone who walks away before 48 months have passed will be giving up at least a little.

However, I think vesting only protects you from co-founders who quit. I'm not sure how you can deal with situations where a co-founder simply stops contributing (or only contributes an extremely minimal amount). HNers, and advice in this area?

On a related note, splitting the company equally might not be the best decision. People are different, and as a result will contribute differing amounts. Later down the road, you don't want anyone to feel like he's doing a disproportionately large amount of work. Sit down and agree on what you expect from each other in terms of time, commitment, and effort, and make sure the equity is split fairly based on that.

I'll also add that I really like working with people who I can consider my equals or who are better than me. To give someone who is as good as me or better a lesser equity share when we're both pushing hard for the same thing doesn't make sense.

Good luck in your search!