Dear SaaStr: What Is a Fair Amount of Equity for a Late Co-Founder?

Dear SaaStr: What Is a Fair Amount of Equity for a Late Co-Founder With 2 Original Founders?

The “late” co-founder seems more and more common to me these days. I call them ex post facto co-founders. And they are wonderful.  You absolutely can find a just epic co-founder later.  There is no rule or law that it has to be on Day 0.

If, in your first year or two, you can often grab someone with such great commitment and such great management skills that they are a co-founder in all senses except when they started — hire them!!

So what’s a fair amount of equity?

  • If they truly carry the weight and responsibilities of the initial founders, and it’s pre-real product market fit (e.g., < $10k in MRR for example) … I say a 1:2 or 1:3 ratio is about right, depending on contributions. Probably 1:4 if you are just past product-market fit.

That’s fair. 33% of what the Day 1 co-founders have if there’s been material progress. Maybe a bit more, depending on the situation. Maybe 25% of what the Day 1 founders have if you are at very early, but real, product-market fit. If you have something.

  • And if it’s later, after product-market fit, then it’s harder.  Once things have started to take off.  But at least try to get them 2x what they’d otherwise have.  2x what a similar VP/SVP would have.

It feels fair, and proportionate. And fair is what you should do in this scenario.

(Note: an updated SaaStr Classic post)

Published on October 29, 2022

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