Incorporated company with 50/50 equity split a year ago, both cofounders had full time jobs while working 2-3 hours/day developing concept. I have quit my job to raise financing, cofounder has decided to stay in job and stop supporting start-up. Cofounder wants ‘high single digit’ equity to reflect work so far. Thoughts?
10% is fair, but if the other founder is no longer actively involved he shouldn't get a vote in anything. This is important for some business deals (like VC funding) easier because the other party will be sure that you have the necessary authority to make decisions. Having ex-cofounders with equity and voting rights is a big red flag.
Yup high single digits is fair. A typical vesting schedule would have him own 12% after one year. However if you believe in the company, you can offer him a full or partial buyout. Many cofounders who lose interest will be happy to sell their stake for cheap as long as you're not lowballing or strong arming them.
OP here - no code written yet. Just deals backing up the business end.
concepts hold no value !
It doesn't matter that there's no code written yet, cofounder trouble can still easily become an existential issue for your business.
Losing equity sucks and losing a cofounder sucks, but you got to keep your head straight and shoot for a clean break. If that means you have to give up more equity than you'd like, so be it. (Within reason, of course.)
I wouldn't spend a minute working on this company until you figure this out and get a lawyer to tidy this up.
Agreed ^
If high single digits includes your getting a piece of paper saying all claims outside of equity are quit, then it is absolutely worthwhile. Do it.
Just make sure the equity is not going to be a factor in voting, is dilutable, etc.