He’s could be taking a significant pay cut and only assigns a moderate future value to the stock, eg, 1% of 50M exit and 10% of 5M exit with 50% ownership is only $500k expected value. Amortized across several years of pay cut (eg, 5 years to exit) you’re looking at $100k/yr “bonus” on $160k for effective $260k/yr. (And that’s assuming no dilution events!)
I agree expectations were misaligned so a bad partnership — but the ask doesn’t seem particularly crazy.
If your assumptions here are correct, he's just not a good candidate for being a founder. If you see earning 163k/year a hardship and don't value 10% equity in a high margin business doing > 30k MMR, then you should try to become an employee at a big company.
Well no, I don't know how startups work, having never been a founder or an investor, but my understanding is that startups are valued at a few multiples of ARR, 10x if there's major growth, for which in almost all cases you'll need VC money (which they don't have).
I'm going to assume that either A) there is no growth without this partnership, so the startup is maybe worth up to 1M, in which case getting up to 40% over 4 years with work and targets makes sense, or B) the original founder is expecting significant growth even without the partnership, in which case he needs an employee and not a partner (and he should pay him as such).
85% margin gives $27k a month or $326k a year before taxes.
Was he going to work on this full time? How does he replace a reasonable salary otherwise?
Of course, I would expect this to be over time (say, linearly over 3 years) and subject to hitting growth targets.