> "How do teams address the issue of IP/ownership?
As with any startup, the team decides. Startup Weekend doesn’t support or take part in the signing of any legal documents at the events themselves, and while Mentors with legal backgrounds are often present and able to give general advice, they are not permitted to give specific legal counsel.While it doesn’t hurt to be clear about your individual expectations from the start, we’ve found that teams who don’t spend time addressing this issue until it actually matters (i.e., there is a tangible product to have ownership of) are much more productive and successful than those who do."
Oh, but it's more "productive" during the weekend. OK...
> we’ve found that teams who don’t spend time addressing this issue until it actually matters (i.e., there is a tangible product to have ownership of) are much more productive and successful than those who do.
OMG! i was just about to ask what's up with that "no contracts" policy. this is incredible! they should rename to Exploitation Weekend.
40 basis points is an insanely large grant for 10-20 hours of work. They wanted 160 bps: 40 per person. At any normal company, you would have to work 4 years to get that amount. If you work at a company as engineer number 1-5, prior to any funding, you might expect 50-300 points, over 4 years, after working for a small salary, and under highly uncertain conditions.
These expectations are ridiculously misaligned and totally unreasonable.
Why exactly would you take 0.5-3% to work for a startup with no money under highly uncertain conditions, when you can take 33-100% of equity to found a startup with no money under highly uncertain conditions?
> Why exactly would you take 0.5-3% to work for a startup with no money under highly uncertain conditions
Because you believe in the team, the idea and the opportunity.
> when you can take 33-100% of equity to found a startup with no money under highly uncertain conditions
Those who can, will.
But this guy wants to do neither. He wants 0.4% for 20 hours, and then he wants to walk away and let someone else build up the value of the company. Assuming his total stake is ~12%, that's equivalent to a demand for a 4 month vesting schedule with no cliff, for what? A weekend?
He doesn't want to found a startup -- he wants to spend one weekend building a shitty prototype. He's not talking about being there when the thing goes live, fixing the broken deployment, troubleshooting the errors -- you know, the actual work which keeps the customers satisfied. He's talking about writing a model one time, and letting someone else take all the risk.
Well, if you can find someone who believes in your idea that nobody will pay for, the opportunity that you can't prove exists, and the team where some folks are taking 90%+ and others are getting 0.5-3%...more power to you. This is why startups find hiring, hard, though. These folks are a.) hard to find and b.) prone to leaving when they realize they're slaving away for virtually nothing.
And IMHO, pretty much everything in this story is set up for failure. This is not how startups get founded. Actual startups get founded by a team working for equal or nearly equal shares, who do all of the work necessary to build something that people want, and then either take funding or use revenues to hire people once they can pay market-rate salaries. Startup Weekend is for meeting people. 0.4% equity deals with no salary are for wasting time on a lot of drama.
> and the team where some folks are taking 90%+ and others are getting 0.5-3%
I'm not sure how you keep missing this key part of the argument: 0.4% over 20 hours. I've italicized the part which I find ridiculous, so that you can better understand where I am placing my emphasis. Him wanting an equal share for an equal amount of work -- no problem. Him wanting to get a full, post-funding engineer's grant for 20 hours: wild overestimation of his own contribution.
I'm missing that point because of this part of your original comment:
> At any normal company, you would have to work 4 years to get that amount. If you work at a company as engineer number 1-5, prior to any funding, you might expect 50-300 points, over 4 years, after working for a small salary, and under highly uncertain conditions.
It's not normal to work 4 years to get 0.5-3% equity, prior to any funding, under highly uncertain conditions. If the company is funded, growing quickly, and paying you market-rate salaries, sure, that might be fair. But if it's just a bunch of guys with an idea, you're pretty crazy to take that deal, and even crazier to keep working on it for 4 years.
It's also not normal to take 0.4% for 20 hours of work, but that's largely because it's pretty crazy to actually expect to start a startup at Startup Weekend. Go use networking events to meet people, and then if you like & trust the people, make a commitment to working with them for a longer period of time for normal founder equity stakes.
> It's not normal to work 4 years to get 0.5-3% equity, prior to any funding, under highly uncertain conditions.
What is that based off of? I've seen that plenty of times to know that it's quite common. I've never seen employees #1-5 being treated like a cofounder, so from my experience, what you're describing is way off base.
> But if it's just a bunch of guys with an idea, you're pretty crazy to take that deal, and even crazier to keep working on it for 4 years.
A bunch of guys who are paying you (admittedly below market). And yeah, if you keep the same salary after 4 years, after multiple rounds raised, after various milestones met, yes you're woefully underpaid.
I know a number of guys (roughly a half dozen startups) that have taken the "Let's get college students to work for us for cheap, or recent grads who are really excited about breaking into the startup scene." Their startups have all failed, without exception. The best outcome was a talent acquisition that netted the founders slightly less than they would've made working for Google over that time period (they were both ex-Googlers).
I also know 2 guys who have exited for ~$80-110M after taking $5-7M in funding, plus the founder of a unicorn who once asked me if I was interested in being employee #2. They all followed the same pattern: the founders built the initial product, they found customers willing to use it, they got funding, and then they hired people. (For completeness, I know an additional half dozen or so people that have followed the same pattern without success, usually getting absorbed back into a big company or other startup that's already gotten funding.)
A dozen data points isn't a statistical survey, but I know which strategy I'd rather follow (and am following).
There's a big seedy underworld in the startup scene that's filled with people working on bad ideas, with minimal funding or just their own savings & credit card loans, who try to get anyone they can to work with them for really cheap rates and small equity promises. Usually these startups end in drama, as they go belly-up and people realize they've spent years being underpaid. If you'd like to be a part of this scene, more power to you, but I'd rather steer clear.
If you want the argument-from-authority perspective, here's Sam Altman:
I think we're talking past each other at this point. I've seen enough deals happen (I used to work in VC) to know that nobody pays the first employees 40 basis points for weekend. Teams cofounding a company together is a different situation, and that's not what we're talking about here. I've consistently been making the point that expecting a 0.4% chunk of a company for building a first prototype is delusional. Your stories of people agreeing to start companies together and waiting until they find P/M fit before they hire up are all great and agreeable, but totally non-sequitur.
I think 0.4% was just for the weekend worth of work. Like just think of it as everybody vested that much over the weekend so the company still had 96.4% unvested equity with very unclear ownership. That makes it seem a little more reasonable although not any less confusing.
Here's how I understand it. OP's buddy proposed the 0.4%, they ended up with 5 members in the team, OP, 3 other engineers and the guy who pitched the idea and is depicted as the asshole fitness biz guy (Billy), so 2% of the ownership of the startup the idea would potentially evolve into would end up in the hands of these initial team members regardless of who runs the startup.
i.e. if after the weekend 4 members said 'that was fun, now let's go home', and 1 member said 'oh guys, can I use all the code and make it into a company?', then the other 4 guys would each have 0.4% ownership in that company even if they didn't put in any money or any time beyond the weekend, on the basis of their work that weekend. I think that's a sensible idea: 0.4% is not a lot, but it's a weekend of work, and if the startup ends up worth $10m or $100m then it's a nice kickback for a weekend's work. If it ends up being worth nothing, no biggie, after all you just worked there a weekend and didn't do anything after to make it a success.
In short, the 0.4% is a reward for anyone who decides 'I don't want to be part of the process of continuing this idea, but I want a small reward relative to what the idea I helped initialise could one day be worth'.
The issue is that when it's all said and done, the process to decide who'd want to turn this into a startup and who didn't looks to have been really authoritarian. One person turns it into a company and splits it 50/50 with a friend of his who wasn't even part of the startup team, and then declares himself to be the owner and leader of the gig which is absolutely ridiculous. A fair process would either be 'alright let's sit together as equals, decide on how we launch the startup, who becomes the leader, equity, salary etc, and anyone who isn't interested gets the 0.4% regardless'. Instead it was 'I'm the leader, I'm half the owner, the other half is someone you've never met, you can still be part of the startup but it's under my conditions and if you don't like it you can have the 0.4%'.
In short I can see the problem OP has with this, added to implications that Billy was being a condescending asshole.
Fact of the matter is however that (1) OP and the team can decide to use the code and run a similar project themselves if they want and iterate on it faster than Billy ever could given the former have all the expertise of not just development but the codebase as well and (2) if they were never interested in that, they'd still get 0.4% of Billy's venture (as long as the handshake deal is upheld i.e. which didn't seem to be put into question).
I think the handshake deal was sensible and I see absolutely no legal basis for Billy to be able to appropriate the work exclusively to his startup. In short I think OP had the power, met an asshole, still has the power. They still have just as much right to the work, still can run a startup without Billy and still can own 0.4% of Billy's venture.
edit: they ended up with a team of 9, billy and likely 8 devs, rather than 5, billy and 4 devs. Can't be bothered to adjust the percentages etc but the same story applies.
Billy ended the weekend co-owning the codebase with 8 other partners. Absent any pre-existing business agreement (forbidden by the competition rules), the future disposition of that codebase requires unanimous assent of all 9 owners. No single member can use any of it without permission from all the others.
If Billy already was 50/50 owner with another person on a completely unrelated LLC, it would have to license/purchase the code from the entire group of 9 to use it. As the 0.4% deal was agreed to at the start, it is unlikely that licensing/purchase agreement would be accepted without including that provision.
Ideally, each member of the team (including Billy), gets a 1/9th split of the prize winnings. Billy-the-LLC buys the code from Billy-the-team-member at a reasonable price, and each member gets 1/9th of that. Additionally, Billy has to grant each other team member 0.4% ownership stake in his LLC, or they never agree to sell their code.
The team members, of course, surely realize that 0.4% is going nowhere if Billy is trying to run a tech-based business without respecting the nerds, so they might just sell it right back to him while he is still full of himself, and before he realizes that he is dead in the water when the first customer makes its first feature request.
The end result is that the 8 nerds get a nice paycheck for one weekend, and Billy gets a stale codebase that he can still monetize through excessive schmoozy salesmanship. It should be a win-win. The only hitch seems to be that Billy seems to think his LLC already owns the code, rather than his informal partnership-of-nine.
I've always had the impression that whoever writes the code owns it, unless there are agreements in place that say otherwise. If Billy didn't create the codebase, and never contributed to it, does he still have partial ownership of it?
The writers of the code do own it. Clearly, a team was formed for the purposes of submitting an entry into a competition. Since they intentionally commingled their efforts, they own it as a partnership rather than as individuals.
Each one of them owns the whole code. If they want to do anything with it outside the existing nine, they need all nine signatures on the agreement. For practical purposes, that means Billy does not have much leverage. He needs to get all 8 of his partners to cooperate, and none of them need him in the slightest.
If he chose to block any partnership agreement, they could just reconvene as a partnership-of-8, and spend another weekend re-creating a better codebase from scratch. He would be left with nothing. The reasons they would not do that are because the idea itself is rather lame and unoriginal, they could probably come up with something better on their own, and having proved themselves as a team, they might want to try something new anyway.
I agree in a normal or typical context, but the 0.4% thing muddies the water a bit and it makes me wonder if Bobby is telling the whole story.
The 0.4% proposal that was agreed on implies to me that they may have known that Billy was interested in turning this into a company and that before-hand they'd agree that each member has a 0.4% stake in whatever venture comes out of the work they do that weekend regardless of who uses it.
Why else strike such an agreement? Without this proposal, naturally every member would have a 100% / n share if they formed a company out of the team, and no single member could, as you describe it in your post, simply appropriate all the work without consent of the rest of the team. The 0.4% suggests that one member wanted to start a team before-hand, the rest didn't, but that this would be their compensation for the weekend of work regardless of who ended up using the weekend's resulting work.
Again this is all just speculation, but I'm having a hard time understanding a potential rationale for the 0.4% proposal, which was a developer's proposal of OP's friend, not Billy's idea to do a bait and switch or exploit the devs.
> If Billy didn't create the codebase, and never contributed to it, does he still have partial ownership of it?
I would say so yes, but only insofar as him being a part of the team. Some members of that team wrote code for that team's goals, not on their own in private hours for their own goals. Therefore the code is owned by the team which Billy is a part of.
That also means that all the sales contracts Billy landed or they pitch they did, is also owned by the devs.
That would indeed suggest however that Billy going off on his own creating a 50/50 with someone else, using the team's work, is like Eric Schmidt (supposing hypothetically for a moment he was a business-oriented member of the pre-Google team on day 1) taking page rank and starting a new company, i.e. total bs that wouldn't hold up in court.
The whole 0.4% thing muddies the waters. It may be interpreted to say that whoever uses the produce of the team's weekend work, must give 0.4% of their venture to the rest as a reward, and having given that reward, no other remuneration is necessary to use whatever the team came up with that weekend. That makes sense in the context of a single startup arising out of this deal, or even competing ventures who both use the software and each award each member 0.4% in their respective ventures, it starts to fall apart when you look at the non-software stuff, i.e. who can appropriate the sales contracts, the logo etc which can't simply be used by two companies. It's a muddy deal that could probably go either way in the courts, which is why Billy's move is so asshole-y and why Bobby probably wanted to wipe his hands of it right away, forfeiting a 0.4% for real other reason other than wanting to disassociate and taking his $200 in the prize share he has a right to regardless.
Of course, I'm not a lawyer so what makes legal sense to me is pretty meaningless :)
> 0.4% is not a lot, but it's a weekend of work, and if the startup ends up worth $10m or $100m then it's a nice kickback for a weekend's work. If it ends up being worth nothing, no biggie, after all you just worked there a weekend and didn't do anything after to make it a success.
How can you say this with a straight face? A $100M company takes years to build. You think in 2020, if these guys walk away from the table with $400k each for ~20 hours of work they did in 2015, that's reasonable? That grant would be bigger than anything any subsequent engineer would earn, and it's beyond dubious to think the contribution of this guy -- who's patting himself on the back for figuring out a CRM schema -- is worth more than the guy who stays for 4 years and actually helps brings the product to maturity and exit.
In reality, each of these guys did at most $1,000 of work. If you wanted to express it as equity, they're off by at least one decimal place. Them coming away in 2020 with ~$20-40k is a much more reasonable valuation of their contribution.
> A $100M company takes years to build. You think in 2020, if these guys walk away from the table with $400k each for ~20 hours of work they did in 2015, that's reasonable?
Yes?
It's a lottery ticket with less than a million-to-one odds. The expected value of the hypothetical payout is arguably lower than 20 hours of contract work.
Ok -- at 40 bps per 20 hours, assuming that their total stake is ~12% (there's 8 of them dividing the whole pie) their vesting schedule is a little short of four months.
There's a lot of big talk on HN about being a tough guy negotiator, earning your keep in this harsh Darwinian landscape, looking out for number one, etc. I'd like to meet the person who's negotiated a 4 month vesting schedule with no cliff.
Once you put actual numbers to the proposition, it's instantly obvious that these badass negotiators are suddenly full of shit. Reminds me of being elementary school recess, where everyone's dad was the strongest man in the world, and this one time he picked up a car and lifted it over his head.
That grant would be bigger than anything any subsequent engineer would earn, and it's beyond dubious to think the contribution of this guy -- who's patting himself on the back for figuring out a CRM schema -- is worth more than the guy who stays for 4 years and actually helps brings the product to maturity and exit.
If I've learned anything since I got out of graduate school, it's this: what you're "worth," what you "deserve," are meaningless concepts. You get what you negotiate, no more and no less.
Someone who thinks that 40 beeps for the founding team is too much probably shouldn't invest in this startup. For me, if I thought that the company would be worth $100M in five years, the $1.6M the SW team would be getting would be the least of my concerns, well behind 'how do I get in on this?'
> Someone who thinks that 40 beeps for the founding team
Not the founding team. Some guys who contributed 10-20 hours one time.
> For me, if I thought that the company would be worth $100M in five years, the $1.6M the SW team would be getting would be the least of my concerns, well behind 'how do I get in on this?'
Nobody would be complaining about how difficult fundraising is if investors were all so amenable.
You've posted this all over the thread and I don't understand it.
It doesn't matter what you or I think of 0.4%. They all agreed to 0.4%. Either that agreement is honored, or all IP remains with its creator--and Bobby takes his code and goes home.
> "contracts aren’t allowed from the event"
Isn't this kind of conflict pretty much guaranteed then?
From http://startupweekend.org/about/firsttimer/:
> "How do teams address the issue of IP/ownership? As with any startup, the team decides. Startup Weekend doesn’t support or take part in the signing of any legal documents at the events themselves, and while Mentors with legal backgrounds are often present and able to give general advice, they are not permitted to give specific legal counsel.While it doesn’t hurt to be clear about your individual expectations from the start, we’ve found that teams who don’t spend time addressing this issue until it actually matters (i.e., there is a tangible product to have ownership of) are much more productive and successful than those who do."
Oh, but it's more "productive" during the weekend. OK...