How do I share a startup reasonably?


3

I posted on Craig's List looking for help developing an idea into a web app. Since there's no money/funding/compensation the thinking is we would take a percentage of the company and the income it makes when profitable (down the road). One developer suggested 60/40 and another 50/50. I thought both proposals were relatively high. Granted the potential developer would take on most of the coding, but that's basically it. I would handle everything else (business end stuff - marketing, advertising, operations, administrative, planning, etc.). Plus I'm a very capable developer and designer myself.

Am I wrong in thinking 60/40, or even 70/30 is an unfair split? Am I unrealistic because its my idea? If so, what is a fair and balanced share schedule in this situation?

Development Design Shares

asked Apr 12 '11 at 08:32
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Crashintoty
18 points
Top agency to build award-winning mobile apps: Utility NYC
  • about 5 people a day post ads on craigslist looking for developers to work for equity only. If your idea is really that good, why aren't you willing to put some money into it? Then there would be money/funding, just not a lot. It's hard for developers to take you seriously if you don't take yourself seriously. – Zak 8 years ago
  • This is my first time doing this and I'm not a business man so its not that I'm willing to put some money into - I don't have the experience raising money yet. I literally don't have the funds to put this project. – Crashintoty 8 years ago
  • I'll add an answer below. – Zak 8 years ago

5 Answers


4

Tough call. Ideally you would want someone who would bring as much to the table as you. Hence the terms co-founder and partner. If this person will single-handedly create the project and you market it, 50-50 or 60-40 makes sense.

You can't count penny by penny and try to see who will bring more value to the table. If you are a designer or a software developer, then maybe the 70-30 makes sense.

Also quality of the work really matters. If you get an A-level developer, it is worth to give them a huge chunk of equity to get them excited. Without them there is no product. With them there is a great product.

answered Apr 12 '11 at 09:12
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Genadinik
1,821 points
  • Wow! I was not expecting that answer. Nonetheless you make a very good point. I guess its difficult for me to asset value in a developer/partner so early on (especially since this is my first time doing this). I'm also really worried about potentially butting heads if it turns out the partner/developer isn't producing quality work. Telling a business partner his work is lacking and subsequently he needs to relinquish some shares is daunting. I guess that's why I wouldn't want to give up so much of the company so early. – Crashintoty 8 years ago
  • @crashintoty It is much better to partner with people who you have worked with before. The current scenario of not really knowing what you will get adds risk to your whole venture. If you can develop, can you just do it on your own at first? You can also arrange for a 1-month "trial" period where you both feel each other out and see if it will make sense to continue. Also, don't jump into partnerships. That is dangerous :) – Genadinik 8 years ago

3

I would say avoid offering equity at all costs. It's something VERY hard to get back, and potentially very expensive even if it is "free" up front.

Plus the best developers will want a salary and you'll likely get more mediocre or inexperienced developers for an equity only offering.

Instead look into outsourcing small parts of the project and putting together the pieces yourself. It's something that's safer to do as no other "partners" with the complete project, and you can pay for the new parts as the old parts of the project pay for itself.

answered Apr 12 '11 at 09:47
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Kort Pleco
891 points
  • Also speaking as a developer, it's very hard to hear "but it's my idea" when I feel like I'm doing all the work. If they're more experienced than you, which they should be, then that will likely be something they're feeling even if they don't say it. =) – Kort Pleco 8 years ago
  • Yes they are more experienced than me, but they definitely don't have the portfolio that an A-list developer would have. And yes, I do have a little bit of the "but it's my idea" syndrome, but I too am a developer - I just WANT to lighten my coding load so I can play Jobs/Rose/Crowley, etc. Like Omar in Scarface, I can get any space cadet to do this. – Crashintoty 8 years ago
  • If all you're looking to do is lighten your coding load then figure out what needs to be done and outsource discreet parts as needed. That way you retain full equity and security in the overall structure of your project as I mentioned before. =) – Kort Pleco 8 years ago
  • Thanks! Unfortunately the funds are not there for outsourcing at all (that's why I'm going the share-a-company route). I just gotta take off my designer/developer/systems admin hat off, put it in a storage locker, trust others will do a good job and focus on the entrepreneurial aspects of this project like I initially intended. – Crashintoty 8 years ago

3

No offense, but it really seems you aren't ready to start this business, especially not as a dot com. If you can't think of at least 5 ways to get $1000 as initial funding, and actually go get the $1000 you probably aren't serious about the idea. This could be as simple as working an extra minimum wage job for 2 months after hours and saving the cash for starting the business. $1000 is a good minimum amount to launch.

$1000 could last you 6 weeks or 6 months. But if you say you have zero money to do anything it is a ridiculous proposition. How will you buy paper to print your business plan out? (It's a rhetorical question, there are 50 just like it.) If you don't look at the idea as a business already and develop a budget to get you to your minimum viable launch point, how will you have any idea if someone putting in "free" hours of development time will even have a platform to launch the idea on?

You say you are going to do all the "business end" stuff including marketing and sales and you're worried that all the effort you are putting in is going be more than what you are expecting the developer to contribute. How can you expect the developer to even believe this if you don't have a marketing plan with a budget already? You are basically telling the developer that however many tens or hundreds of hours he spends developing this product isn't even worth spending $1000 of marketing on? As a developer, this would tell me you indeed are not serious.

This can be corrected. Work the second job. Put the money in the account. Develop your marketing plan to figure out how you are going to spend that first $500 acquiring users. If you've put that level of work into the idea, then you can start worrying about equity distributions on partnerships.

answered Apr 14 '11 at 03:49
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Zak
131 points
  • Very good point. I actually already started the 2nd job for this project, but my thinking was to use the money for servers and the technology necessary to build and launch the idea. I think this is my thinking because I'm a developer and designer too and I don't mind working without compensation initially. Unfortunately for me the fact that I can do the back-end and front-end work myself may be putting less importance on wooing other developers financially. – Crashintoty 8 years ago

2

There's nothing wrong with setting up an equal partnership. The key point is that you both need to have vesting for your stock. That means that if either of you quits the company before a certain amount of time has elapsed, you lose your stock.

A typical plan, if both partners quit their jobs and work full time, might be a 50-50 partnership, with shares vesting 25% per year for four years.

If your partner quits in the first year, he loses all his stock. If you quit in the first year, YOU lose all your stock.

If he quits after one year, he loses 75% of his stock. After two years, 50%. And so on. All the stock is vested after 4 years.

The advantage of this system is that it protects you from someone quitting and still owning a giant chunk of your company.

As for how much of a split is fair, well, I think the idea is worthless. It really is. What's worth something is working full time on it. If you both quit your jobs and work full time on a new idea, you both deserve an equal share of the company.

answered Apr 14 '11 at 11:53
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Joel Spolsky
13,472 points
  • Perfect! This will alleviate my fears of someone walking out because they can't cut it or they can't stomach it. Thanks! – Crashintoty 8 years ago

2

It is really tough if what you have is mostly the idea and business plan, but no cash to pay a developer. In my experience developers do expect too much and it is for this reason many people recommend every founder - with web projects anyway - learn to code, even though you may have no natural proclivity for it. There is also the problem of sustainability - how long will the developer have to hang around to make your venture a success - usually these things have to go threw several iterations at least.

Best bet - make some agreement that involves mutual benefit, but doesn't involve you giving away a huge chunk of your business at an early stage. Agree to do marketing for the developer, for example, in exchange for his or her coding services.

answered Apr 12 '11 at 09:42
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Rob Gordon
439 points

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