I and a friend are looking at a start up for a web product. He has come up with an idea and was looking at assembling a team in India for developing a prototype for the product. He is based in Europe and is doing a full time job. Currently we are at the concept stage & I am helping him design the product and putting up a team in India.
We want to decide on a partnership model between both of us before going ahead with registering the company. He has offered me a partnership in the ratio proportionate to the amount of seed investment put in by each of us, and proposed that he will invest a higher amount. However with all other qualifications being more or less similar, I think that I am better positioned to manage the operations for two reasons - I am based in India and I am currently not in a full time job. So I have asked for an additional equity of at least 10% so that we both end up having 50:50 stakes.
I feel that an equal partnership will keep both people equally motivated to get it on to a stage wherein it can be converted into a full time engagement for both of us.
Alternately I am ok for a 50-50 partnership with
I. additional equity of 5% if I take up a full time job
II. additional equity of 15% if I do not take up a full time job
Please advise if my argument is reasonable. Does it work better for the business if one partner has majority stakes than both partners having equal stakes?
I think 50-50 split sounds fair. If your company is not successful, the split won't matter. If the company is successful, then well done... aren't you glad you didn't jeopardise it by having uneven equity splits that can cause drama.
If you really can't come to terms about this, maybe you need to consider if you really want to partner with this person. Not being able to get this agreed upon would be a bad sign to your ability to compromise and work together.
Theres a guy named Frank Demmler from Carnegie Mellon who wrote a really awesome peice on how to split up equity amongst founders in a fair / logical manner. I'm having trouble finding it again, but I think it was called The Founders Pie Calculator. It's a great tool to check out.
Goodluck with your business!
Here's an excerpt of it that I found: http://stephenfanjoy.posterous.com/dividing-the-founders-equity-pie
50:50 is best, as anything more complex is likely to lead to tension and eventually resentment.
If you believe in the product and the team, then 50% of something good is better than 63.7% of something that doesn't quite work.
The artificial 50:50 split is a recipe for disaster.