A few people have asked me recently to start a business with them. In each case, the other person tells me that he's got this awesome idea for a mobile app / website / software that I should develop for them and in return I will get a 30% equity in their new company. Most of the time, the other person, being a non-technical, greatly underestimates the amount of work that it takes to develop the software. In addition they think it's fair that they get 70% as it's their idea. In addition, they often don't have money to pay me.
In terms of actual work that needs to be done, it's mainly just software development (including requirements capture, prototyping, testing, coding, etc..). Other then that, strictly non-technical work could be customer development, market research, marketing and promotion. However, most of the time the other person doesn't have these skills, because they have a different non-technical and non-business background. It seems to me that software development is the bottle neck as that process creates the product and it requires specialized expertise. Whereas, the other person would do business stuff that they might have to learn or they might not even think about it.
What negotiation outcome should I aim for in this position as a technical co-founder? Is it wise to accept the offer, even if it is 50%-50%?
A good co-founder will have at least 2 and ideally 3 of the following:
Ideas are a dime a dozen. Here's the only idea you need: make something people want. If I were bringing just Talent into the mix I would take 30% if the other founder(s) were bringing in Money, Network, Ideas, and all had the drive. Also, here's a little secret: everyone ends up having plenty of ideas. In reality your successful mature business 10 years down the road is most likely going to look nothing like this person's initial "million dollar idea". If ideas are truly all that this person is bringing to the table then within 3 months you're going to have contributed enough, just on the idea front, to step back and realize that:
If you're willing to take a 70/30 split and let the other person simply "provide the idea" then I have about a dozen million dollar ideas I'd like you to take a look at. I'll be expecting my 70% in about 6 months, jsut call me when you're ready to make the first deposit.
As for the second part of your question.
What negotiation outcome should I aim for in this position as a technical co-founder? Is it wise to accept the offer, even if it is 50%-50%?Are you starting a business, or just "making an app"? Lets assume you're starting a business. Considering you're going to need to bring in Talent (non technical talent), and at some point you'll need money, you need to be thinking in terms of how much more equity am I going to have to give up in order to get where we need to be. Lets say you start at 50/50, if you have to bring someone in to make up for deficiencies in non-technical talent that's another maybe 25% dilution, then when you need for sales, marketing, hardware, etc. you're looking at another 20% - 40% dilution, depending on the investment. Unless co-founder #3 is very strong and willing to be the CEO the VC is going to insist you hire a CEO, that's 10% on top of a standard 10 - 12% option pool for future non CEO employees. By the time you have hopefully gathered enough of the essentials you're going to find yourself with a 20 - 25% stake.
Personally, if it's successful, 20% is good enough for me. But you're taking a risk here as well. Chances of success are not 100%. You need to have a solid business model and understand the business side as well to determine if you're actually working on something that is viable. What's the sales strategy? Do you have to hire a support team? What do you have to do to be profitable? Does your profit margin rely on the founders not taking a dime in salary in year 1?
As the technical co-founder you should have the chops to crunch the numbers and figure some of this out if you can make reasonable assumptions.
As a non-technical co-founder I think a 30/70 split unreasonable - an idea alone does not add enough value to claim a 70% stake.
I believe in a 50/50 split where both parties bring specific skills to the table and have to achieve in their respective fields of expertise. As a technical founder you will have to look for someone with more than an idea - someone with the drive, ambition, passion and skills to market, promote and develop the business.
In terms of work load - both technical and non-technical co-founder will have their job cut out for them. Development hours do not outweigh the hours it takes to build community, PR, marketing and business partnerships. The real work starts once the product launches.