Possible Duplicate: Forming a new software startup, how do I allocate ownership fairly?
A friend of mine came to me (I'm a software developer) with a software project idea that he had and we agreed it was a good one. He is from a humanistic background and has no software skills whatsoever. So in the end he would be contributing with the idea and possibly some negotiating skills, whereas I would be designing and building the software.
Does it make sense to split the ownership 50/50 or should we look into some other form of distribution? What can he expect in this partnership for his idea?
Taking the question as "How do we split the equity when one partner simply provides the idea while the other partner builds the software?"
In the words of Edison :
Genius is one percent inspiration, ninety-nine percent perspirationIn general it is much, much easier to come up with an idea than it is to actually implement it and make a successful business. If all one partner contributes is an "average" idea, then 50% is probably too much, particularly if it is going to take you lots of time or money to implement.
There are things that could make an idea far more valuable however. Consider the following "ideas".
If you figure out a cure for cancer we could make lots of money.
I have a formula for a drug that might cure cancer, you go test it.
I have a formula for a drug that cures cancer in the mice I tested it on.
I have a formula that cures cancer and I have a patent on it.
I have a patented formula for a drug that cures cancer and it has been approved by the FDA.
Clearly a proven, patented formula with FDA approval is worth far more than a formula that might work and which needs research and testing.
Then there is the question of implementation. There have been lots of great ideas which were simply before their time, in other words they could not be implemented with existing technology. A perfect example would be da Vinci's invention of the helicopter. In the 20th century that idea is worth megabucks, but in his day it was impossible to produce. Or consider Frank Whittle who invented and patented the jet engine. He let the patent lapse in 1935 for lack of a 5 pound renewal fee.
The bottom like is that it takes both a good idea and proper implementation to be successful. One without the other is worthless.
If you can program the idea over a weekend then the idea might be worth 50% or perhaps even more. If it is going to take you two years full time to complete a prototype then it is a quite different matter. Consider your opportunity cost, is there some other idea you could work on?
Finally the idea of a a partner who shows up for one day to provide the idea while the other slaves for months to implement it reminds me of the story of the chicken and the pig. The chicken has an idea to open a restaurant where they serve ham and eggs. As they say, "the chicken was involved while the pig was committed."
As the person who would be committed to implementing this software, what are you willing to pay for involvement?
Short answer: idea is worth nothing. Seriously, zero.
You can (potentially) go ahead and implement this idea on your own now.
If you still would like to have him as a partner - you can ask him whether he's willing to work on marketing/sales/fundraising side. If he wants just to sit on his idea and let you do the work - I'd say he deserves exactly 0% of equity.
I'm a software developer myself and I have a lot of people who come to me with their "great ideas" and offer me 50% of equity or less. Usually my answer to this is "What do you bring to the table so that YOU have 50% ?" In most cases people don't know what to say, so I stay away from them.
This is a great question and a common one as folks come together. On the one hand, him sharing the idea with you... He could expect to retain 100% ownership and merely pay you for your time as a developer... On the other hand, he may want you to be a founder and take on a 50/50 split.
Before you get to far down the road, I would have the conversation of who is doing what within the business. If you are handling the development of the product and he is handling the marketing, hiring, sales, admin, etc. Then perhaps you two feel an even split is mutually valuable.
Ultimately your contribution needs to be weighed against his contribution. Negotiating roles and responsibilities early on really helps set expectations for ownership shares. I would recommend having an informal discussion to nail down some of the details of your questions.