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!
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.
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:
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
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