How much equity to give to the idea guy?


2

Here's the situation at hand.

I'm a designer, entrepreneur. I work with a lot of talented developers etc.

One of my non-technical buddies had an idea for an iOS app. He explained it to be through a brief conversation. It's a simple idea, but has potential to make money.

This was 9 months ago.

Since then, I've recruited a developer and social media manager as co-founders.

Myself and the developer wrote the business plan, designed/developed the app and we're close to launching.

How much should we give my buddy who had the idea? He's contributed very little to the actual project.

Equity

asked Mar 12 '13 at 11:37
Blank
Tyler
16 points

1 Answer


4

If all somebody does is contributes the initial idea, in a perfect world, they would get no equity or payments for the idea.

Ideas in their nascent form are probably worth somewhere between $0 and $0.02. Probably far closer to the low end of that range.

The reality is, most entrepreneurs have hundreds or thousands of ideas. They usually have so many that they know they'll never get to them all. If you know a place where you can make a few bucks for an idea, let us all know, because that would be the fastest way for me (or anyone) to get rich!

What makes ideas worth something is turning it into a real product or a real service. It's the hard work. It's the time spent figuring out the details of what it actually means to do it. It's the research that goes in to talking with potential customers to validate the idea. In the process, the actual idea inevitably changes significantly from how it started.

Equity is for the people who sacrifice much when there is no guarantee of a payoff. Having a 20 minute conversation about it doesn't count as a sacrifice.

Because it's a friend, it deserves handling it with a bit of tact, though. If you think there is a way for the friend to contribute long term, you could tell him, "Hey, me and a few other guys are going to work on an idea like what you and I talked about a while back. If you're interested, we'd love to have you [do some task] and be a co-founder with us."

If you don't think he can contribute, you may still want to consider telling him about it anyway, just to clear the air. He may be fine with you doing it with no reward. If he insists on getting paid, explain to him why the equity has got to go to the people who put in the hard work. You could point out how the product that the three of you are building is different from his initial idea. You could show him how many other people had his idea long before he did.

If none of that convinces him, you'd still be hard-pressed to actually lose a legal battle over it. You could still proceed with the idea. (But just because you'd almost certainly win, doesn't mean you wouldn't get sucked into a time consuming and expensive legal battle anyway.)

Of course, the other option would be to just back off of the idea and try something different, just for the sake of keeping a friendship. After all, as an entrepreneur, you probably have hundreds or thousands of other ideas you could do instead.

answered Jan 31 '14 at 18:05
Blank
rbwhitaker
3,465 points
  • "Ideas in their nascent form are probably worth somewhere between $0 and $0.02". Love that! :) – Tim 3 years ago
Add Comment

Your Answer

  • Bold
  • Italic
  • • Bullets
  • 1. Numbers
  • Quote
Not the answer you're looking for? Ask your own question or browse other questions in these topics:

Equity