I am in the process of developing a website focused on the travel industry. It's a unique idea that I feel "has legs", and I've gotten very positive feedback from some close associates who have industry experience.
I have secured my domain, written up a business plan, hired a graphic designer to design the logo and come up with a catchy site design. I am working on detailed business requirements, wireframes, use cases, etc. I will need a developer shortly to turn those ideas into a fully functioning website.
I have approached someone who I've worked with in the past whose work I feel is TOP NOTCH. This guy is far and away my #1 choice. I have approached him about the idea and he really likes it. He said he's very interested but is tied up on other projects for a few months, so things are on hold for the time being. I'm hoping that once I have all of my specs done, he'll be ready to roll.
What I'm seeking is advice on how to compensate this person. I feel that he can be more than just a lead dev--more like a CTO type down the road. I can leverage his advice as well as his skills. He seems open to an equity stake, but we did not talk specifics yet.
How much equity would be considered fair assuming I did not pay him at all for his time? What about if I paid him something ($25/hr for example) plus some level of equity? He normally charges $100-$150/hr for his services to other customers based on what I've observed.
I want to be fair, but obviously I'm looking to retain as much ownership as possible given that it was my idea and I will have done a lot of the legwork, and taken on all of the expense to get it off the ground.
Any thoughts would be greatly appreciated. Thanks!
Congratulations on finding a niche and developing it to this point!
You described the developer you have identified as a "CTO type." Then a few paragraphs down you say "I want to be fair, but obviously I'm looking to retain as much ownership as possible given that it was my idea and I will have done a lot of the legwork, and taken on all of the expense to get it off the ground." You need to clarify what your position is on this.
At first it sounds like you want to take a partner, then you turn around and talked about him as an employee. I think you'll have an easier time, once you answer this question.
Other than that, it looks like you have thought this out well.
For any startup to really succeed it needs a strong team behind it. Given that you are starting a web based business a developer is always going to be someone who you will need. That gives you two choices either to continue outsourcing it or to get someone onboard to help you out with the project on a longer term basis. I would strongly suggest the latter as outsourcing can become very expensive and time consuming. You need someone to be there with you always to continue adapting the website to feedback and changes.
Given this I would say that you should be quite open to giving up a considerable amount of equity to this person. He will not only add immense value to the business at an early stage, investors will be more likely to invest in you in the future given that you have a strong technical lead.
Owing 30% of something that is worth $1000 is far better than 90% of something that is worth $100.
If you can't really pay him, but you want him to do the development, then I would think some sort of nearly equal stake would be reasonable. He may be satisfied with 1/3, but you are asking him to dedicate a great deal of time on something that may not pan out, so the risk is very high, the potential reward should also be high.
Besides, he is putting in a great deal of money into this venture, as the time he spends on your project is time he could be making money on other projects.
Ask him what he would like, and then you will need to do some negotiation, but he has a better poker hand, as he can say "No" and go on with his other work, whereas you would have to then find another developer that you may feel is second-tier.
If you get too greedy you may lose out completely so you need to decide if creating a good company is more important, or how much you may make if it becomes a real company.