Reasonable split for non money making start up


0

A friend of mine has a website that is generating decent traffic. I'm a web designer and he has asked me to re-design it all and build part of it. Part of the work involves helping him make decisions on how to make money from it.

As he won't be paying me, we've started to talk about equity / profit share. The basic idea is that I'll get paid a percentage of the profit. That all seems simple enough but for how long? And what should we do if the website is ever sold.

Does it seem reasonable that I should always be paid a pecentage? For example in 40 years? To me it does as although I'm not financially backing him, I am backing him with time which is money so it is an investment.

Any pointers / suggestions would be most welcome - I'm new to this so I'm totally in your hands and apologise if the question sounds a bit stupid!

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asked Nov 6 '12 at 02:31
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Mattysk
1 point
  • If the company had an infinite amount of money, how much would they pay you for the work you'll be doing? – Frenchie 6 years ago

2 Answers


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My answer is in practice for myself and might not be true/correct for all.

I am sharing it with you because your situation is similar to mine and it might help you and similar developers.

Right now, I too manage the technical aspect of an evolving company. I do the frequent design changes or any module work. For that, the deal finalized was that the company will give me 300$/month and 2% stake in the ownership. I am committed to the work but not office hours and this has been in practice for last 4 months.

You can also sort a similar kind of deal and adjust it accordingly. Since, I was addition to the team after 6 months of startup, I was fine with 2% stake. If you have been with this startup, you might seek a higher stake. Anyways, whatever it is, you have to take this decision. It might vary from 2% to 50% depending on your inputs/roles to the project.

NOTE:- My deal is just a reflection and I don't say its the best or correct for all. Use it as indicative to how a developer can deal with startup.

answered Nov 8 '12 at 17:00
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Pankaj Upadhyay
156 points

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Whatever else you do, make sure you agree in writing. While this will help if you fall out in the future, it will force the two of you to consider what is important right now, meaning you will reach a much more thought out conclusion.

On to the nitty gritty, I find it helpful to consider two 'extreme' scenarios based on who takes the risk:

  • Your friend could get a bank loan and pay a contractor to do the work (for arguments sake let's say $30k). This will cost your friend $30k + interest over the time it takes to repay the loan out of website profits. This has a moderate amount of risk: the website may never make enough to repay the loan.
  • You work for free, for some agreed percentage of profits. You take the risk the website never makes enough money to repay you for your work.

So, as a starting point, you want to make sure your total remuneration is $30k + interest. The time this takes to pay to you can be estimated based on the current profit the site makes.

Then, you need to think about the risk you are taking in delaying payment for this amount of time. The longer the expected repayment time, the bigger the risk. Some of things that can be offered in return are

  • A equity share in to company (if one exists)
  • A percentage of profits. This should be tied in to how much you make, for example 50% of profits until you have earn't 30k + interest at 15% pa (the high rate reflecting the high risk). If it appears you can never be repaid (using a reasonable estimate of revenue growth) it's completely appropriate you should get a percentage forever (this is basically equivalent to an equity share)
  • Competitive performance bonuses: what if traffic to the site doubles once you rewrite it? That's a direct contribution your hard work and web design flair has made, over and above the value of your friends original idea. You could agree for you to be paid a high percentage of profits from traffic in excess of what the site already sees.

The above should give you some ideas on how you can value your contribution, and the sort of package you would like to receive. It also has plenty of variables that you and your fir

answered Jan 7 '13 at 19:02
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Zero
101 points

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