Ask HN: How to “test” incoming partners and weigh equity? | Hacker News Reader

Ask HN: How to “test” incoming partners and weigh equity?

4 pointsmaunaloa5 comments

I am a software engineer who has been working on a B2C product full-time for most of the last year. It's not a product that will change the world, but it closely matches existing offerings in the market so I think it has a decent chance of generating revenue. Ultimately, I think it will come down to marketing execution.

I've been talking with a serial entrepreneur I met online who is interested in partnering. From my research he looks like someone whose career focus has essentially been online marketing and hustling. My hope is partnering with someone like this could drastically accelerate growth and unlock a lot of value.

I'm trying to figure out how to safely bring this guy in and test him out. In conversations, he's indicated that he sees this as a long-term relationship with us as equal partners (50-50 split). This partly makes sense to me, but other variables make it less clear. For example, I have been all-in for most of the last year working on this, and he will be joining with the product mostly built. Also, my leverage mostly decreases moving forward, since I'll have already built the product.

I'm hoping I can get some input on - whether I'm overthinking this or setting myself up for disaster? are there better ways I should be approaching this? Does a 50-50 split make sense when I’ve absorbed so much cost and risk? If not, What kind of split would make sense? are there ways to protect myself going into this? How do you structure an agreement to “test” out a new partner?

"serial entrepreneur"

This is usually a red flag. Let's be honest. Why would a real serious serial entrepreneur partner with someone who has no track record (being blunt here). If at all, they should want to invest in you. But I like the fact that you are at least asking this question which means you want to be conservative.

Don't get me wrong. If he has real proven experience and the "serial entrepreneur" part can really be validated, you could try a partnership. The problem is that you don't know anything about this person yet except that you met them online.

I am just too old schooled to even imagine that I can have a co-founder that I met online without working with them previously in my capacity. Don't do it if you ask me. Instead, try to hire them as a contractor/freelancer if you can and go from there.

And yea, if you do equity, VEST VEST VEST with CLIFFs.

I disagree with the 50:50 split; I think you're giving away your equity unnecessarily. Understandably, you're not a marketing genius and you want to leverage the marketing potential of someone else who is skilled, knowledgeable, and gifted in that field, but you can do much better than 50:50. This is your baby, be confident your product will attract investment (time, money, other resources) from others than those who are looking for an easy paycheque. You deserve to be rewarded for your ingenuity, intellectual property, and sweat equity. You can find marketing genius in every corner of the internet - don't give away your future and profit on a lack of faith. Personally, I would consider discussing your product with a company such as Homebrew (https://homebrew.co/); they're in the business of helping start-ups such as yourself achieve success.

A quick edit/addition: regarding a fair split if you're going to hire/partner with the person you're currently considering. In that situation I would default to a merit-based approach. Base pay plus commission or stock options for every deal the person puts together, or for every predetermined financial goal achieved. Let him put in the time, as you have, to earn his share and prove his worth.

Thanks, I appreciate the recommendation. This makes a lot of sense. I am going to try launching solo to get a better idea of where I'm short (maybe I am not at all), then I'll have a better idea of what help would be worth to me.

Not at all. 50-50 is too much. With product led growth and other avenues you should definitely scale it down.

Also do not give it away all in the beginning but tie it to some commitment.

I agree.

@OP: Repeat after me at least three times: "4 years vesting with 1 year cliff"

Did you verify that the previous business are real? Are the previous partners happy? Are the previous partners real?

Make YOUR lawyer review all the paperwork, and get everything in written.

Imagine the happy path: He is very good, and in 10 years your business is huge and everyone is happy.

Imagine the unhappy path: He is a scammer or a moron, or he has an incompatible vision of the future of the business or whatever. Can you fire him in 3 months? 6 months? Can he fire you? Does he get a fair compensation? Does he get most of your business?

Be sure to understand both scenarios, and perhaps a few intermediate versions.

As a warning, take a look at "A $5000 chair" http://battlehardened.wordpress.com/2012/02/07/a-5000-chair/ HN discussion https://news.ycombinator.com/item?id=3564569 (217 points | Feb 8, 2012 | 60 comments)

Reply on news.ycombinator.com