We started our business back in July 2009 with the intentions of building websites, consulting, internet marketing, etc. Now we have changed our focus to developing a SaaS solution for a problem/opportunity we feel very strongly about.
Originally one of the founders was a talented developer (20% owner), but things didn't work out--we couldn't keep him motivated and had to buy him out. The two remaining founders are not developers. We are to the point of starting development but are unsure of which direction to take.
Any advice? I would prefer to be further along before I entertained taking the angel money--this would help us determine how much equity to give up, but the cash would really get things going.
If the MVP is really minimal, something that can be built in 2-4 weeks or so, then I guess the 2-5% ownership and no salary deal is not .. wrong. But I really question if it would stay at that level of effort, given the dynamics if the MVP begins to take off in the market. And I think it's a unfortunate way to structure things -- if the MVP gives say 3%, and the realization of the full project is 50x larger than the MVP, do you then offer the developer 150% of the company?
And if you end up trying to get many months of work for your few percent ownership, then that would be unethical IMHO -- ideas have little value, but execution has, i.e. the developers slice should be much much larger.
Getting angel money with just an idea is unusual. Not impossible by any means, but it has to be a pretty darn good idea. You could go this route, but I would advise checking out the angel beforehand. If he's an amateur, then you're in trouble if you let him inside. And without a product and some supplemental income, how many months of runway would his investment really buy you...
2 "business guys", 0 developers, and you've already had one developer on board but forced him out... This sounds unsettling IMHO.
The above advice is based on a gut feeling that says your idea isn't nearly as good as you think it is. This gut feeling has a high probability of being completely wrong -- after all, I have just a few lines of text from you to go on. Don't let it stop you; I'm just explaining why my initial advice centers around inexpensive testing of the MVP & getting some practical work done.
Edit: About the the potential trouble with an Angel who is not an experienced investor: Well, the 'soft' trouble can be having to deal with the angel himself; as he may have many bright ideas about how to run the business that he would like to see carried out. The 'hard' trouble can more be in the legal department, often small angel deals are made on a hand-me-down contract that someone copied from somewhere. Without good legal advice this can end up with onerous legal terms on right of first refusal for capital expansions, above market rate influence in the company management etc, which would be red flags for a future Venture Capitalist looking to invest. All of this can be handled with proper legal advice -- but entrepreneurs often skimp on legal advice for angel rounds, as the sum invested is small. Structured, professional early stage investors such as Y Combinator, Band of Angels etc are better in this regard. This is not a showstopper, it is just something to consider and counteract as best possible.
Take the angel money and start to build a company. Hire at least two developers and pay them something so that they don't have to worry about eating. Not much but enough that shows you value their contributions. Focus on your MVP and get to revenue quick.
It's important that you have the mindset that you want to build a real company in a frugal manner. Doing this will force you to hunt for viable business opportunities that tend to get pushed to the back burner when everyone is working for free.
The equity should be distributed fairly as well. It really sounds like you are relaunching this effort, so consider that when looking at equity distribution.
Providing the "large share" 10-20% upfront with a vesting schedule should eliminate your concerns for having another not-so-motivated developer and provide ample motivation to a part-time developer.