Why? Even at 35%, she's got much less equity than the original founder. If her market value is 80k, and they're taking salaries, what do you expect her to do?
Talent is a marketplace. It isn't owed to anybody.
Talent is a marketplace. It isn't owed to anybody.
She's not taking enough risk to get anything close to 35% in my opinion. It doesn't get more sweetheart that that. Too bad she was too dumb to realize that her good position could have been very good later on.
Again, it seems like you're talking as if there were "rules" about equity participation. You would have to have an absolutely awesome idea to make, for instance, a security researcher participate in a startup for no salary. Even if you pay one $50k, and that $50k cripples the startup and maxes out hardship for everyone else in the company, it's still a sucker deal for the researcher.
I'm using a familiar example to illustrate a point. It's a marketplace, not a secret society.
And I don't care what you're doing, if it takes 12 months to get a prototype in django, you aren't worth 80K.
Whole deal sounds to me like she didn't give a crap about long term future of the company, she just wanted to ride the funding into the ground through her paycheck. I'd bet she demanded more equity in a moment of faith, but by that point they were doomed.
Obviously the poster thought that the app would become lucrative enough to justify a $160k investment. If the payoff looked really huge, you could justify being a little more stingy with the options. Just sayin'. (From the guy who doesn't have a lot of options because his app is in healthcare too)
What are you asking her to do? Stay on in an untenable situation? News flash for you: when you make a mistake signing on with a company, you aren't "honor-bound" to stay there until the situation plays itself out. If your situation sucks, leave. She did.
There's another unfortunate lesson here. When people threaten to quit, counteroffers are often a waste of time. People with MBAs will tell you not to make them at all. I've learned this the hard way; I got a really good offer in the middle of my last PM job, brought it up with my current company, and they upped my stake. But for the next 2 years, they were constantly on the defensive assuming I was going to quit again; it damaged the working relationship severely.
If you're a solid company, and someone gives you an ultimatum, a no-foul clean break is often going to be the right move. I wish it wasn't like that (I had no intention of quitting), but some political situations are untenable.
- She only left cause they were out of money, I suspect she would have rode that horse to death.
-I'm done debating; it was really fun, I got work to do; Im sure you do too... .rb
Again: the project could have been broken into milestones, maybe with each demo-able. The founder wasn't technically capable of doing this, but could have had the dev write up a spec milestone-by-milestone, and then managed the project to that spec. At any point during the year, the dev could have left and the founder would have had something usable to work with.
Not only that, but by not managing the project well, the founder sent a message to the dev: "I don't really know what I'm doing, so I'm throwing money at you to make things work". There's nothing wrong with that when the person you're throwing money at is a full partner whose interests are aligned with yours. This person wasn't.
I'm making a lot of assumptions here, and I apologize if I'm off the mark.
However in business, relationships and "karma" - for lack of a better term - are really what things are about. There are times when you should be looking at maximizing your position, and there are other times when you should be looking to cooperate in order to maximize a collective position.
Many of the people here (myself included) are simply stating that the dev displayed poor business acumen by being too aggressive in taking advantage of another's weaker position. The key being who that other person is - her supposed partner.
Partnerships need to have a level of loyalty beyond any particular transaction or they simply won't work.
Chalk it up to first-time founder mistakes on both sides. Almost everybody drastically underestimates the amount of effort required to get a startup off the ground. So what seems acceptable at first ("yeah, this won't be hard for me, I can whip it off for you") starts to feel like you're getting massively ripped off later.
And I totally agree with the comments on other subthreads that she's probably not a very good Django dev. I wouldn't be surprised if this is her first Django project. I remember that I expected my first PHP project to take 3 months; it ended up taking 3 years (I didn't charge for it; it was a volunteer project in college).
I never had 94%
I was eventually ok with giving up founder level share, but expected founder level commitment. This is where the gap lies.
Unless you were paying the developer very little, or nothing, that is when equity should be used as payment
35% is a LOT with $6900/m
I don't know if it's intentional but it seems like a lot of people here are talking as if there were "rules", like "x% is fair, y% is unreasonable". There are rules of thumb. But compensation is a marketplace. If the founder has no leverage, taking a lower stake in exchange for salary isn't honorable. It's just stupid.
Both parties need to feel like they're getting a square deal. If either of them don't, it doesn't work.
If I was hired to do a project, and my payment was inline with my market value, I wouldn't care what my employer is doing as long as I kept getting my money.
$6900/m sounds like market value to me. If I was in the nurses position, I would have offered 1% equity on top of $6900/m
Of course, there are two sides to every story.
If you make a mistake when you negotiate a position, you are not ethically required to "ride it out" to some foreordained date.
Like I said, it's one thing to negotiate better compensation, or to walk away for a better offer, etc. It's another to say "I can screw you over and I will use that to get more from you".
And like I also said, there are two sides to every story. This is seen exclusively from the owner's side.
* Maybe you really did do a majority stake's worth of work, and she was just inexperienced.
* Maybe you didn't really do a majority stake's worth of work, and she felt like she had gotten shafted. You did start her at 6%.
* Maybe she was just a bad employee and a crap dev and wanted the paycheck. You weren't experienced enough to notice and fire her.
* Maybe through no fault of her own the project became untenable (for instance, maybe the spec changed a bunch of times, or you couldn't hammer out a reasonable set of features to launch on --- this has happened to us lots). You ran out of money, and she couldn't stay, good faith or not.
What are you going to do different next time?
As happened here, apparently.
There's a whole chapter on this problem in most introductory game theory textbooks. The basic problem is that you cannot directly control how hard someone works, you can only give them incentives to work hard and then measure the output. Much as you'd like to say "She's a professional, you're paying her, she ought to do a good job," the real world doesn't work that way. She'll do a good job if it's worth her while to do a good job.
The economy is not fair. You can try to pretend it is and watch all your ventures get driven into the ground, or assume that you're going to get a raw deal sometimes and only take those raw deals when it leads to a sweeter deal later on.
I paid the 35% equity 8 months ago, only to have her quit when the going got tough.
My comments are mostly intended for bystander-readers who're thinking of doing the same thing - paying a technical developer a full salary + 1-5% equity to develop a product from scratch. There're a lot of people that still suggest that, and it really doesn't work, as you've found out the hard way.
I dunno what advice I'd give to you personally - it's a hard situation, as many others have pointed out. Probably cut your losses, chalk it up to an expensive learning experience, and move on, then try again some other time. As I mentioned in another comment, I think it's fairly unlikely that this developer left you usable code that someone else could pick up, so it'd be difficult to get a contract developer to push it to finish line. You could learn to hack yourself - Python and Django are not difficult - but it'd set you back at least a couple months, and then you'd still have to implement everything.
[Edit: last paragraph was on the assumption that her work was not even demoable, but rereading your post, it sounds like you've gotten to alpha but just need to incorporate the feedback in. If that's the case, a contractor might work, but be aware that it's harder to read code than to write code, and if the code quality is bad enough any contractor would just have to throw everything out and start from scratch.]
If you can find a technical cofounder, someone that you trust that you know is a good developer, I'd do that (and give the decent equity from the start!), and then they can probably write the whole site from scratch in a couple months. But it has to be someone you know well, someone whose skills you're sure about, because otherwise you run the same risk with them.