We are currently three partners in a tech start-up. I'm the founder and hold 85% of the stake. One of my partners is building the analytical engine which is kind of the backbone of our business and has 10% stake and the third partner has 5% for helping me in business development. Around 95% of the total $ investment so far has been made by me, 5% by the third partner and sweat equity by the second partner.
We are towards the end of building our MVP and in the next three weeks need to sit down with the web developer to talk about partnership (he will be the fourth partner) and really need your help in getting a better idea of how much is reasonable to give as equity.
Around 6 months ago when we started building the product we were looking out for a technical partner who would build the web application for equity. After a lot of searching we found a guy who is really good at what he does but he didn't want to join as a partner right away but wanted to get paid until the MVP is built and then if both parties are in agreement we get into a partnership. He asked for 60k to build the product and said he will need to hire another developer to share the development effort. But he said that we will never be able to ever meet or even speak to his developer due to the terms of his contract with his employer. The whole thing sounded fishy and we had a fall out. But since we could not find another person as promising as him I went ahead with his terms.
Once our MVP is built we will not have a lot more new functionality to add to the product. There will be quite a bit of work to makes fixes, enhancements and expand on the current functionality but the foundation has been laid and most of what we will need to build will be an extension of what we will have in the MVP.
The question is, after having paid him 60k (part of which he claims he paid his developer) what % equity should I give the web developer to join as a partner and continue development on the product?
Since I'm not entirely sure whether he was truthful with us or not about his developer is it even a good idea to go ahead with a partnership with him?
Thanks a ton for your help!!
So, did this person actually write your software or did they outsource it to this other developer? I don't think I would want to bring in a "technical" partner who isn't actually the programmer on the product. He will still have to pay his developer and if the future work is sweat equity then that probably won't work out very well because he still has to pay his coder.
I would ask him how much he would want to buy / invest in your company.
So you have given him 60k for his work thus far, he hopefully has seen the potential in your company and the quality of the product. Maybe you sell him a % of the company for $XX,000 and maybe also agree to some sweat equity terms for future development. I know that sounds a little strange but if he didn't actually code the software his overall value is very hard to calculate.
It's hard to find an equity only tech partner who will come in on a product that has already been developed. Having a developer come in for sweat equity as they go through someone else's code to fix bugs, maintain and grow is a tough gig and it's hard for them to really get a sense of ownership and commitment in the project.
But there are people out there, you obviously found this guy.
I'd see if he wanted to buy in... at this point that would be the biggest measure of his commitment, confidence in your idea and what he thinks he can do or you in the future.