Ask HN: How to deal with a prospective third co-founder?

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.

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!

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.

Time spent and value created are only barely correlated. Anyone who's worked for someone besides themselves is keenly aware of this. ;)

This is true even in process-oriented jobs, though to a lesser degree than creative jobs.

From my experience, complicated earn-out structures are a nuisance. They are hard to set up fairly (a lot of edge cases) and even harder to deal with if things go south.

I second what nedwin said about vesting & equal split. Instead of focusing on putting equity value on every hour spent, think of the desired outcome (great company equally split by three cofounders) with a lot of time allocated and a kill switch in place.

Agreed with @nedwin on gut feeling to make him/her nearly equal. Hours definitely not an accurate measure of value add or your progress to date.

Heard this once: 90% of zero is zero. You want a split that incentivizes your partner to make your part worth millions and the best way might be to give them more.

Define how the shares are split at the beginning. If you gonna track each week what each of you have done, it's gonna create lots of useless tensions.

"We try to find someone who has (1) technical or business (or design) skills"

You don't know whether you need a business person, a designer, or a developer? Then the question to ask is why get a third co-founder at all? It will complicate communication, equity, etc., so you should actually avoid a third co-founder until you really need them.

The main issue is that we are currently 1.5 founders, actually. I am developing the product and my co-founder is involved only half-time (~20 hours per week). We make a very good team, but he just does not have more time to invest, and I would need support really pulling the project. That's why I'm looking for another founder, whether more focused on the technical or business side.

A developer would be great for brainstorming, for building a technically great framework, and for bringing motivation and inspiration to the whole project. I would enjoy working more on the business side of things too.

A third founder with business skills would be great too -- we need to incorporate and do a lot of different business related things such as risk management and research into law and the kind of guarantees we can give to our customers, amongst many other things. If someone else would focus on that I would be more free to develop the actual product.

We can go forward with 1.5 founders as well, but it would be a lot more fun with a third person, would increase the motivation, the speed of iteration, and overall the chances for success!

It sounds like you need a new 2nd co-founder if you want to take this seriously, not a 3rd.

perhaps.

but i do appreciate our collaboration - it's highly inspiring and working together with him is very helpful for the project. although i do 80% of the work currently.

I disagree. Three is better than two. no more, no less.

Look at Youtube as the perfect case study. Jawad, the thrid foudner, gave up operation dutities togo back to school. he still advised, and was paramount in the early stages of the company/product.

If the OP has already found one right partner (it takes more than just chemistry), then losing that person may harm you and your business.

At a same time, a 3rd founder who is a specialist could really help you in this situation. I don't think I can add any more value about that than it's been already said here.

Goodluck and make sure to post updates as to your founder search.

"he just does not have more time to invest"

This is your core problem. I can think of two main possibilities: a business problem or a team problem. Either he's not a committed co-founder or your startup's business opportunity is not good enough to pull him in more. Adding a third person won't fix this problem, it will just give you another.

He is committed and we seriously believe in that opportunity. But my co-founder is already 40 years and has been working the last 15 years. He already cut back to just over 20 hours to be able to contribute more to the startup. And we do not have enough money to just quit our day-jobs.

I do appreciate working with my co-founder and he does push the project forward. But since I do 80% of the work, I would appreciate a full-time partner.