Should I ask for equity as co-founder?

"I have been invited by a friend to be a cofounder of a startup. Should I ask for equity? if so, how much?"

This kind of questions gets asked a lot. People are legitimately wary, about making mistakes, about damaging relationships, and about the secrecy nature of this. For private companies, there is no published data about this kind of deals, so you really have no one who can give you honest, straight and definitive answer.

A cofounder needs to be aware of the following facts:

1. A cofounder IS a founder. It comes with expectations and responsibilities.

2. A company only has 100% of shares. If a company becomes big, your small share will be worth a lot of money. If a company goes no where, it is not worth anything.

3. Any method of valuation is just a game played by the VC and the capital market. It should not be your basis of calculation. For example, if your company at last round is valued at 20 million dollars, you should not expect that if you have 5% of the company then you are worth 1 million dollars and a millionaire.

Whether a cofounder should ask for equity depend on at least four variants:

(1) Are you expected to quit your current work immediately and forego the salary?

(2) Are you going to be paid salary and how much? at reduced scale or full scale?

(3) Does the company expect you to pay cash into the company coffer?

(4) Do you expected to own equity of the company?

A cofounder's share, if the cofounder does not contribute cash to the company, and does not quit current job, should not be more than 10%. If you happen to be given 30% or more, it will be scaled back at next rounds of investment anyways.

In most cases, a VC investor putting in 10-50 million dollars would only get 10-30% of the company. A VC would not ask for too much. It would rather gets a small share to bolster the artificial valuation of the company. Keep this number in mind.

It is not a game of "the more the better". The importance thing is whether startup work is something you love and whether the founder and you share the same dream and same exit goal.

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