How much equity should these founders have?


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Me and my 3 partners are in the early stages of a gaming start up company. We are now looking to split the initial equity in the company because we are not all on equal terms.

Person#1 is an experienced game designer (10+ years). He will be handling funding, market analysis and marketing. He will be working full time, not getting paid until the company can afford it.

Person#2 is a software engineer. He is finishing a 3 month contract and will be joining the team afterwards. He will not be working for those 3 months, but will be working full time afterwards.

Person#3 is a software engineer. He will be working full time on developing the first game, not getting paid until the company can afford it.

Person#4 is an artist. He will be working part time (about 20hours a week) until the company can pay him a small salary (about 2000$ a month).

We currently applied for a few grants for start ups. These are about 15k$ each, and we can get a maximum of two. The company would need around 20k to start.

We need an initial investment of about 2500$ for software licensing and about 3000$ for hardware a few months in.

Person#1 is interested in putting down 10-20k$ to start the company. Person#3 is willing to match Person#1s 10k to get an equal share in the company.

The first game would launch in 3-4months, it is a mobile game. We have a early prototype and a few elaborated projects. As this is a mobile game, revenue and growth is very hard to predict.

How do we determine how much equity each person gets? How much more would Person#1 get if he puts down 20k? How much if Person#1 and Person#3 each put 10k? Please ask for any more information, I will be happy to respond!

Funding Equity Gaming Investment Early Adopters

asked Feb 13 '13 at 13:30
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David Menard
101 points

1 Answer


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There are many red flags:

  1. Not everybody is equally committed.
  2. You're going to create a mobile games, which is a hugely unpredictable market. Winner takes all. Or in other words, nearly everybody loses.
  3. In order to pay the 4 of you each $4000/month you need $16.000 per month. If you create an iOS game you typically won't be able to sell it for more than 99c, so you're going to need at least 22.000 in sales per month. I don't see how you can make a back of the envelope calculation work. In app purchases (or the equivalent on your platform) won't bridge the gap.
  4. What happens when people #2, 3 and 4 release the first version of the game and it doesn't magically start selling. Is it now the sole responsibility of person #1 to do the marketing?

Dividing equity is really the least of your worries. Just find a compromise that works for everybody. If your company fails it isn't worth anything, and then equity doesn't matter. And if you succeed then you all become reasonably wealthy no matter how the equity is divided. So you want to divide equity in a way that feels fair to everybody so everybody is going to work hard to make the company a success. So whether it should be 25/25/25/25 or 35/25/20/20 we can't say.

Then you can focus your time on aligning expectations, levels of commitment, (legal) obligations, and so on.

answered Feb 14 '13 at 02:45
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Jeremy
1 point

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Funding Equity Gaming Investment Early Adopters