Question

Equity Split Between Co-Founders

Hey everyone!

I am looking for help in deciding what the equity split should be between two co-founders.

Any help regarding my situation would be greatly appreciated! Thanks!

Quick Rundown

I am running a music production site to help music producers. The site currently contains a free download library of music production tools as well as interviews, tutorials, and music production news. The site made almost no money when I was running it and all the social media accounts for the 3 years of its existence. My plan was to build an audience before I started selling to them, which is why I did not look to make money. I met my cofounder and we transitioned into building a business and did planning for a year. Right now we are getting a web developer to build a marketplace that will be incorporated into what I have already created with the website. Now we are at the point where we are working on a founders agreement and equity split. (yes, this should have been done earlier)

Important Factor to consider
* We are both financially unstable. However, my co-founder is more financially unstable than me and has a hard time paying his bills.

My Relationship With Cofounder
* When I was networking for my website, I met my co-founder
* On and off for a year, he helped me with potential ideas on how to grow my websites audience and helped build my Facebook group without asking for anything in return r
* A year after I met him, I hired him to build the brand identity for $700 as he had prior experience with working on brand identities.
* He worked on the brand identity and this eventually led to us collaborating on building a business.
* In addition to the $700, I started to pay him monthly 1 month after the $700 payment for his help with building the business. I paid him $300 each month for 5 months and have paid him $140 each month for 4 months
* We are now at the point where we have the business plan, website mockups and specs and requirements done and are having the marketplace built
* Through this time, we did not discuss a founders agreement and we are currently trying to work out an agreement and most importantly the equity split.

Past Contributions

Cofounder
* Came Up with business idea
* Created Mockups & Specs & Requirements for website
* Created logo, tagline, brand story, and brand meaning (Didn’t finish everything he said he would for the brand identity because he said he wanted to wait till the website was being built)
* Found web developer that we are currently using to build the website.
* Has experience in brand identity, graphic design, and a little bit of entrepreneurial experience.

Me
* Founded the website and ran it by myself for 3 years
* Built website
* Grew community (social media following, email list, website monthly visitors)
* Maintains the community every day
* Paid my co founder $2,800 over the last year to help me build the business
* Spent $15,000 on the project not included the money sent to cofounder. Cofounder has contributed $0 to this business and doesn’t plan to contribute out of pocket for the business because of his financial situation.
* Created the business plan
* I have more expertise in the music industry than my cofounder, but no experience with entrepreneurship except for the 3 years running the website and community.

Future Contributions

* We both plan to be with this business for the long haul. (We might change our minds in the future, but for now, we don’t plan to build business and then sell it as soon as possible)
* The job distribution for running the business is pretty evenly split.

Other Notes

* In the time that my cofounder has been getting paid by me to help build the business, he has had a lot of issues with his living situation and every day living because of his financial situation. Every thing that he created (mockups, logo, brand identity, etc.) for building the business was never on time. His personal financial situation has been an issue that keeps him from spending consistent time on this project.
* In the year that we were working on building the business, I just maintained the community and did not look to expand it.
* My cofounders strength is his ideas. I still am not sure about the execution of his ideas though.
* He is also a graphic designer, but I am skeptical of his ability in this as he did not have many examples of his work and the ones he showed me were not very good. He has not worked professionally as a graphic designer for a decade.
* I trust my cofounder, but I am not sure if he will be able to put in the required work for it to be successful.

So the question is, what should our equity split be in the company?

In my opinion, I should get a bigger share of equity. (I know, shocker)

I was thinking 65% for me and 35% for my cofounder.

I founded the website and community and laid the foundation for 3 years. My cofounder had little involvement in this. (helping with ideas and a little community building in the Facebook group)

My cofounder came up with the business idea, created the mockups and specs & requirements.

He has contributed $0 to the project. I have paid for everything.

When we launch the marketplace, we will be starting from with a community and foundation that I laid over the last 3 years.

I would like to know your honest opinion on an approximate equity split based off of the information that I have provided.

Thank you for taking the time to read this post and comment!

I know it was quite long, so I really appreciate it!

Discussion is locked

Answer
Follow
Reply to: Equity Split Between Co-Founders
PLEASE NOTE: Do not post advertisements, offensive materials, profanity, or personal attacks. Please remember to be considerate of other members. If you are new to the CNET Forums, please read our CNET Forums FAQ. All submitted content is subject to our Terms of Use.
Reporting: Equity Split Between Co-Founders
This post has been flagged and will be reviewed by our staff. Thank you for helping us maintain CNET's great community.
Sorry, there was a problem flagging this post. Please try again now or at a later time.
If you believe this post is offensive or violates the CNET Forums' Usage policies, you can report it below (this will not automatically remove the post). Once reported, our moderators will be notified and the post will be reviewed.
Comments
- Collapse -
Answer
What do you own?

If the partner does not materially invest then they get only what they were paid. I bet a lawyer would state the same.

You paid him so you are good to go ahead without him claiming he was not compensated for his work.

That said if you did anything "off the books" on pay you will now learn why you never do that.

- Collapse -
I own the company

Right now, the company is a sole proprietorship owned by me.

To be clear, I think he does deserve equity in the company.

My question is how this should be handled based off of my situation.

I have gotten feedback from other people and they say that it might be best to pay him a more comparable wage and give him a very small % like 5% in the company.

Also an earn-in ratchet based system could work. If certain tasks get done, in this type of time frame, at a certain level of quality, and this results in X, he’ ll get Y percent, and this will grow to Z % if the next stage achieved. Additionally, if Y or Z% is earned, he will be able to buy a certain percentage of equity.

- Collapse -
My bet

Is a lawyer would say he's been paid and needs to buy in. Yes, I've done a lot of work for lawyers over the years so this is second hand knowledge but hey, see your lawyer and have "the chat."

- Collapse -
Answer
to keep both happy

and to avoid complications mentioned by Rob, I'd just make him a decent offer to walk, if you don't want him around anymore, but he sounds like someone who knows how to get things done, even if not always conventional methods. Sure you want to go backwards? You might need him in future, may really still need him now. Kiss and make up?

CNET Forums

Forum Info