The Technical Cofounder Equity Calculator: What's Fair and What's Not
A developer offers to build your MVP for 20% equity. Another wants 40%. A third says 50/50 or nothing. You have no idea what's fair.
May 20, 2024 10 min read
A developer offers to build your MVP for 20% equity. Another wants 40%. A third says 50/50 or nothing. You have no idea what's fair.
Equity decisions are permanent. Courts rarely reverse founder splits. Investors won't fix bad cap tables. The equity you give away now affects every future fundraising round and exit scenario.
Here's the framework for making this decision without guessing.
The Standard Equity Framework
Fair equity splits match contribution, risk, and value creation. Not just time invested.
The Equal Split (50/50) Scenario
When it actually makes sense:
Both founders are critical from day zero. Neither can be replaced without fundamentally changing the company. The technical cofounder brings irreplaceable expertise, not just development skills.
Both carry equal financial risk. You're both leaving jobs, investing time without salary, deferring other opportunities for the same duration.
Decisions are truly shared. Not just "you handle tech, I handle business." Both have veto power on major decisions. The partnership is equal in authority and responsibility.
Long-term commitment is matched. Both plan to work on this full-time for years, not just until launch.
The reality: most situations don't meet all four criteria. When founders rush into 50/50 because it "feels fair," problems surface later.
The 60/40 or 70/30 Split
When this makes sense:
One founder contributed first. You validated the market, got early customers, or proved demand before finding the technical cofounder. That de-risking has value. The technical cofounder is joining something with traction, not starting from zero.
Stop planning and start building. We turn your idea into a production-ready product in 6-8 weeks.
Commitment timelines differ. You're full-time from day one. The technical cofounder is building part-time until there's revenue or funding. Different risk deserves different equity.
One side brings significantly more. The business founder brings funding, industry connections, and customers. The technical founder brings development skills but not unique technical innovation. Or vice versa.
Roles aren't equally critical to success. If the business is more about distribution, relationships, and sales than technical innovation, the business founder might deserve more. If it's deep tech with trivial go-to-market, the technical founder might deserve more.
The 80/20 or 90/10 Split
When this makes sense:
You've already built significant value. Revenue, customer base, brand, market validation. The technical cofounder is joining to scale what's proven, not validate an idea.
They're joining late with limited risk. You've been working on this for months or years. They're joining now with clear scope and reduced uncertainty.
Their contribution is valuable but not essential. Many qualified developers could do this work. They're not bringing unique technical capabilities or domain expertise.
Founders hesitate to offer small equity percentages, fearing they can't attract talent. But the right developer would rather have 10% of something real than 50% of vaporware.
The Vesting Schedule: More Important Than the Percentage
Equity percentage is what you argue about. Vesting schedule is what protects you when things go wrong.
Four-year vesting with one-year cliff is standard. The cofounder earns their equity over four years of work. If they leave before one year, they get nothing. After one year, they get 25%. Then monthly vesting for the remaining three years.
No vesting is founder malpractice. If someone gets 40% equity immediately and quits in month two, you're stuck. They own 40% of your company forever. Investors will see this and kill deals. Always vest.
Acceleration clauses should be mutual. "Single-trigger" acceleration means equity vests immediately upon acquisition. "Double-trigger" means they have to be fired after acquisition. Double-trigger is standard and protects against people checking out after acquisition.
Reverse vesting for founder sweat equity. Even if you've been working on the company for a year before the technical cofounder joins, put your equity on a vesting schedule too. Investors want to see everyone vesting. It shows long-term commitment.
The vesting schedule is your protection against misaligned incentives. Use it.
The Real Cost of Equity: What You're Actually Giving Away
Founders think about equity as "just a percentage." But that percentage has dollar value that compounds across the company's life.
Dilution Math Across Funding Rounds
Assume you give a technical cofounder 40% equity. Here's what that means through typical funding rounds:
Seed round (raising $500K on $3M pre-money valuation): You give up ~14% to investors. Your 60% becomes 52%. Their 40% becomes 34%.
Series A (raising $3M on $9M pre-money valuation): You give up ~25% to investors. Your 52% becomes 39%. Their 34% becomes 26%.
Series B (raising $10M on $30M pre-money valuation): You give up ~25% to investors. Your 39% becomes 29%. Their 26% becomes 19%.
After three typical funding rounds, your 60% is now 29%, and their 40% is now 19%. If the company sells for $50M, you get $14.5M and they get $9.5M for building an MVP.
For context: If you'd hired an agency for $30K to build that MVP and kept the equity, your 29% would be 48% instead. That's $24M vs. $14.5M. The technical cofounder equity "saved" you $30K and cost you $9.5M.
The math changes at different outcomes, but the principle holds: equity is expensive.
The Opportunity Cost Calculation
When evaluating a technical cofounder's equity request, calculate their effective hourly rate at different exit scenarios.
Assume they'll work 20 hours/week for 6 months to build the MVP, then part-time ongoing. That's roughly 520 hours of work in year one.
If you give 40% equity:
Company sells for $5M: They get $2M. Effective rate: $3,846/hour.
Company sells for $20M: They get $8M. Effective rate: $15,384/hour.
Company sells for $50M: They get $20M (pre-dilution). Effective rate: $38,461/hour.
If you give 10% equity:
Company sells for $5M: They get $500K. Effective rate: $961/hour.
Company sells for $20M: They get $2M. Effective rate: $3,846/hour.
Company sells for $50M: They get $5M. Effective rate: $9,615/hour.
Now compare to hiring an agency at $150/hour:
520 hours of work = $78,000 total cost
You keep 100% of your founder equity
At $5M exit: you get ~$2.5M instead of $1.5M (60% split) or $2.9M (90% split)
The technical cofounder route only makes economic sense if:
Their ongoing contribution after the MVP is irreplaceable, or
You literally cannot fund the MVP any other way, or
The company wouldn't exist without their specific expertise
30% equity break-even: $83K-167K exit (agency almost always wins)
40% equity break-even: $63K-125K exit (agency wins unless total failure)
You'd need to build a company worth less than $125K for the 40% technical cofounder to be cheaper than a $50K agency build. That's not a business. That's expensive hobby software.
The agency advantage:
No long-term commitment or vesting negotiations
Fixed scope and timeline reduces risk
You own 100% of founder equity
If you need to pivot, you're not negotiating with a cofounder
No cofounder breakup scenarios
When technical cofounder still makes sense:
Your product requires deep, ongoing technical innovation (not just development)
You're building in a technical domain where developer expertise is the competitive moat
The technical cofounder brings unique domain knowledge, not just coding skills
You need someone in the technical leadership role full-time from day one
For most MVPs, you need good development—not a cofounder. Know the difference.
The Cofounder Breakup: What Happens When It Doesn't Work
50% of marriages end in divorce. Cofounder relationships are more fragile.
What goes wrong:
Mismatched commitment levels (one works 60 hours/week, the other treats it like a side project)
Technical cofounder finishes the MVP and disappears
Personality conflicts over company direction
Life changes (family, health, other opportunities)
Financial pressure when revenue is slower than expected
If equity vests immediately: They own their percentage forever, even if they leave in month three. You can't dilute them. You can't buy them out without cash or negotiation. They're a permanent shareholder with voting rights.
If equity vests properly: They leave, stop vesting, and retain only what's vested. Four-year vesting with one-year cliff means maximum damage is 25% if they leave after exactly one year.
The negotiation position problem: Once someone owns equity, removing them or buying them out requires their agreement. They have leverage. If the company is doing well, they can demand premium buyout prices. If it's doing poorly, they might refuse to sell at any price.
Equity is permanent. Treat it that way.
The Decision Framework: Questions to Answer First
Before offering or accepting equity, work through this framework.
Is this person critical to the company's success, or critical to building the MVP? If they're just building the MVP, that's a contractor relationship, not a cofounder relationship. Hire them or hire an agency.
What happens after the MVP launches? Will they stay and contribute long-term? If their value ends at launch, equity doesn't make sense. Pay for the work.
Could you hire someone else to do this? If yes, it's not cofounder-level contribution. If the work is replaceable, the compensation should be contractor-level, not equity.
Are you actually aligned on vision, timeline, and exit goals? If you want to bootstrap to profitability and they want venture scale, that's a fundamental misalignment that equity makes permanent.
Do you have the cash to pay for development instead? If you can afford $30K-50K for an agency MVP, the math strongly favors keeping equity. If you literally have no budget, equity might be your only option.
Would investors see this person as a critical part of the team? If you raise funding, investors will evaluate your team. A strong technical cofounder strengthens the pitch. A part-time developer who got 30% equity weakens it.
Equity isn't the only compensation structure. Consider these alternatives.
Deferred cash payment. Pay for development after you raise funding or generate revenue. Build this into your budget and contract. Some developers accept this if the timeline is clear.
Revenue share. Give the developer 5-10% of revenue until they've been paid a predetermined amount. Aligns incentives without permanent equity. Works for products with clear monetization.
Small equity + cash payment. Offer 5-10% equity plus partial cash payment. This shows commitment while preserving your ownership. The equity is upside, not primary compensation.
Advisory equity. If someone contributes but isn't a full-time cofounder, 0.5-2% advisory equity over 1-2 year vesting is appropriate. More than that, they should be a formal cofounder or employee.
CTO-as-a-Service or fractional CTO. Hire technical leadership on a retainer or project basis. Get strategic guidance and oversight without giving equity for execution work.
The right structure matches the relationship. Cofounders get equity. Contractors get paid. Don't mix them up.
What to Do This Week
If you're negotiating equity with a technical cofounder right now, take these steps.
Get market data. Talk to other founders in your space about their equity splits. Join founder communities and ask what's normal. YC has public guidance on founder equity.
Calculate the dollar value. Project realistic exit scenarios ($2M, $10M, $50M). Calculate what the equity percentage is worth in each scenario. Compare to paying cash.
Draft term sheets with vesting. Put everything in writing. Equity percentage, vesting schedule, roles and responsibilities, what happens if someone leaves. Don't operate on verbal agreements.
Consider alternatives first. Can you bootstrap the MVP for less? Can you raise a small friends-and-family round to pay for development? Can you validate without building first?
Get legal review. Founder agreements are complex. Spend $1,000-2,000 on a startup lawyer to review the terms. It's the cheapest insurance you'll ever buy.
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