The situation is this. I am a software developer that, in his free time, has developed a software library for a specific purpose. I use it to write custom applications that I sell or sell directly the library (which is a much more complex thing, because of licenses, documentation and so on...).
I planned to license the library to a number of different clients, but for the moment I have only 2-3 buyers and only one is a licensee of the software library. All this is at an amateurish level (that is, they send me the money, I send them the software, with a rough license written by me if needed). One of this companies wants to protect his business and want my sofware to be exclusively used by them. They want to buy the new software library version (which improves a lot some important aspects), but I found exclusiveness a too strong requirement. I want to be paid much more for blocking my library for 2-3 years. So, to block me selling it to other companies, they offered me 1.5% equity plus some other things that I will not mention. Now, i would like to understand better how to proceed.
What is an equity? Is it simply a percentage of the company income? Roughly speaking, are they saying that if in the year 2013 they have a net income of 1000, I would earn 1.5% of 1000?
And what happens if the company get debts? I have to cover 1.5% of them, too?
What information about the company do I need to know before making a decision? I would say: their Financial statement. But I want to know also if they have debts, for example (99% that they don't have, but better be sure...).
Another thing: consider the fact that I would bring in the company the core technology. I found that 1.5% of equity (provided that it is a percentage on the earnings) is really too low. I would ask them at least 10% or more (15% seems much more reasonable) of the earnings.
Finally, keep in mind that this is a really small company (three founders and I don't know if there are other employed or so) and is really a start-up. They have been always respectful with me and have a vision and a lot of ideas, but they need my software to go on (I think that starting over with another software developer would be not so simple, because I have done a lot of work in the direction of their business).
Other general things to keep in mind: