As head of an internal software development project being spun off, what level of equity should I negotiate for?


1

I am in negotiations to spin off a new company that will develop and sell our in-house software project as a SaaS product.

As a founding member (the Development Manager) of the new company, I have been (counter)offered 1.5% equity, vested over 5 years. A further 1.5% would go to the General Manager, and 1.2% to our lead developer. The remainder would be kept by the parent company, which will also provide the startup funding of 600,000 USD. The parent company is not proposing to give startup equity to the other four developers, who would transfer from the parent company.

The 1.5% offer is based on company valuation after five years, which is when my stock would fully vest. Although that return does look quite healthy, it doesn't account for risk.

My skills and experience are primarily in technology and development leadership, and I'm not a natural business person -- tough negotiation does not come easily. So my concern is that I get the right deal for myself and my team, who are pivotal to the new company's success, but own nothing of the product itself other than our tacit knowledge. The company we will be spinning out from is a sales company, not tech, so we're negotiating with hardened sales people.

My other key concern is autonomy. If we don't have a significant degree of autonomy, it's my belief that this will cripple our ability to pursue an innovate, technology-driven agenda. My current CEO wants to put an ex-salesperson in as General Manager (non technical), who I would be reporting to.

I have been developing the web application in question for three to four years, as a bespoke solution for my employer. As project lead I pitched the original proposal, got the budget, built the development team and designed and developed the product. We have been developing it for 3.5 years now and it's been live for 2.5 years. For the spinoff, I developed and pitched the business plan, financial forecasts, strategy, etc. I have also taken the lead on sales and developed prospective clients.

I've found a couple of other questions that are related, but I think my circumstances warrant a new question here.

What is fair equity for a lead or senior level position pre-series A? What is the appropriate equity % for software bootstrap key employees? How much in stock options should we offer new employees? I'd really appreciate any advice!

Software Equity Saas

asked Aug 2 '11 at 00:46
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Ash
106 points
Top agency to build award-winning mobile apps: Utility NYC

1 Answer


2

I don't see how this is a risk or why you should get more since:

  • It appears that while you were developing this as custom software you were getting market rates/pay
  • You will continue apparently to get market pay for your work - there is essentially no risk or downside - so 1.5% is very reasonable.

The company has taken all the risk - not you. It may be fair to ask for raise in salary or bonus or perhaps a little more upside - but 1-2% is pretty fair I think.

answered Aug 2 '11 at 01:21
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Tim J
8,346 points

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