I am the sole founder of a bootstrapped startup (idea conceived by me, revenue model and business plan developed by me, and I filed a provisional process patent for the concept). I have incoporated as a Delaware C-Corp, and authorized 12M shares (10M common, 2M preferred). I have issued 6M shares to myself with an associated capital contribution of $60K.
I now need to hire software developers to build a proof of concept. I have had the work sceoped by a local developer who estimates 100 hours of work to get to a working prototype and his bull rate is $100/hr. This implies a conract value of $10K. This developer believes in the idea and concept so much that they are willing to take compensation in equity. I am cash strapped and welcome the idea of compensating in equity versus cash.
My question is this: and how much equity should be granted for this work and how should it vest? Thanks!
Equity Independent Contractor Contractor
The developer estimates it will take 100 hours. It will therefore take 300. During the 300 hours the end result will suffer from feature creep as you see it evolve and show it to people and you'll ask for things to be added / done differently.
Ultimately, he'll be sucked into the business doing far more without pay then both of your originally intend. I would look around the 25% mark, otherwise he'll quickly get frustrated when that happens. 25% is also worth going that extra mile for, much lower and it's a lot easier to just walk away when it gets tough.
As an aside, given you've filed a patent, haven't you already spent more on the legal costs than the developers intended time? Wouldn't it have made more sense to leave the legal part, pay the developer for the 100 hours? Then you'd get very early feedback whether you have a hope or not, and then maybe go to an angel for something like 25% for 50k, sort the legals with that plus have money to continue on the product.