How much equity should startup Independent contractors get?


0

So, A friend of mine has a brand created for a game, characters, story, the works. He also a rough idea about how the game should be which looked pretty solid.

He took out about $40,000 loan and approached myself (designer/developer) and another designer/developer about coming together and building this thing into a great game to put on the App stores.

I'll take on roles such as:

  • UI/UX design
  • the whole front end development
  • game mechanics decisions
  • level design
  • designing key monetization strategies behind the in-game store and
    in-game advertising then actually developing it
  • Setting up analytics and developing a strategy to measure UX, then
    developing it
  • I was also responsible for building the website and occasional social
    media posts
  • I'm also the only person on the team that has experience publishing
    iPhone and Android apps, so I'm responsible for that process as well.
  • All along with any other situations that could arise.

He's offering $12 an hour for us to build this. But doing a cross platform development project with this many roles and responsibilities throughout the process would put my market rate around $125-150/hr But I'd be willing to a flat $100/hr.

Anyway, he can't do more than $12 which isn't really sufficient for me to live off of. But he is a good friend, and I'm hoping there is a future for me in this project if we can build a hit.

The contracts he presented would:

  • brand us as independent contractors
  • sign away all rights to the code
  • offer 2% of the app revenue every year as a bonus after the loan has
    been paid off

I was pretty clear I viewed our relationship as building this business together. I hope to see us bringing in revenue, making regular updates and fixes to maintain the game, running promotions, then planning versions 2, 3, 4, and so on as long as we can keep this great thing going.

I'd be taking a pretty significant risk lowing my hourly rate that dramatically missing out on a good chunk of money up front. But I'd be willing to risk making it back with equity if I can make this thing a success.

I'm afraid signing a contract like this could leave me in the dust once the hard work is finished and won't leave me with an opportunity to grow as the game grows.

I'm working on my proposal and I want to make a reasonable offer for a contract I'd be happy to sign. I'm not trying to take more than I deserve, and nothing less. If it could be structured in a way where if the game is a success, I'll succeed. If the game failed, then it makes sense I would fail.

He has hinted at a larger % (of only app revenue, not equity) when that time comes in a 2nd contract. But I'm not sure if it's smart for us to sign these contracts now.

He just seems to think because he's paying us (even though it's way below market price) we shouldn't be asking for anything else. Is he right? Does a vague 2nd contract in the future sound like a bad idea?

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asked Aug 25 '13 at 03:43
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Brybam
103 points
Get up to $750K in working capital to finance your business: Clarify Capital Business Loans
  • This is too long to read. Please consider editing it down some. – Zuly Gonzalez 7 years ago
  • thanks, the edits helped quite a bit. – Theao 7 years ago

3 Answers


1

Welcome to the real world, which requires you get things in writing.

I agree with Zuly; I think your "question" was way too long to read so I skimmed it and got this...

  1. You worked on a project that is possibly reaching an end.
  2. You didn't get the details of your engagement with it in writing.
  3. CRAZY CRAZY CRAZY CRAZY
  4. Now you're at a point where you're seeing a sizeable opportunity... and you want a slice of the pie.

So, you're basically stuck with whatever you can convince your 'friend' to give you. All he owed you for your work unless you have in writing is the $12/hr it sounds like he has been paying you. If there was any other agreement, it's currently irrelevant unless you have it in writing.

Next time, get the specific details up front, in writing. Or stop when the project is clearly becoming viable and rebalance then. At this point, you may be stuck. There's no 'normal' split for independent contractors on the equity thing, but you're welcome to go back and propose whatever splits you like, and see if you can get the guy to agree.

answered Aug 25 '13 at 04:19
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Theao
255 points
  • Maybe 20% makes sense... or maybe 50/50 or 33/33/33? It really doesn't matter what the internet tells you, it matters what the other guy feels. Especially if your own gut feel is already that he would see it as completely unreasonable. So unfortunately we can't tell you here. My own suggestion would be to go back to him and say that you think that the 2% royalty is inadequate compensation and you'd like to see what equity he would consider. 20% could help to anchor it in your favor, but if I were him I would be pretty pissed. – Theao 7 years ago
  • I don't think you're quite understanding the situation. We actually are in the start of all this. This is the beginning where we're trying to get things in writing. Something I think is key is that when I propose bigger percentages he hints an a future 2nd contract. But that would go against what you said about getting everything in writing at the start. He's saying I might end up with less if I want a contract that has all that now. – Brybam 7 years ago
  • I think it's also important to consider the fact that this guy took out a $40K loan... probably under his own name? So he will be especially ticked if there has been a miscommunication where he really viewed you as a contractor and a resource, rather than a partner. From where he stands you'll be trying to come in and snake the rewards without actually taking much risk. – Theao 7 years ago
  • I can only make my own conclusions from the information you're posting here... sorry if I misunderstood something you've written. – Theao 7 years ago
  • I think you should push for what you want now. I've looked through your portfolio of previous app projects and I can see you've done enough to have legit experience. His line about a 2nd contract later... maybe... is just a classic line, and reinforcing it with "you might get less if we settle for something now" is classic too. You should respond with something like "well I might get less then, too... so I'd like to settle now,) or "well if it comes to that point and you would like to give me more, let's incorporate an optional increase in the current contract". – Theao 7 years ago
  • I was upfront about wanting to build a business and getting a % of the revenue. Especially considering how I'm working for poverty line wages. This is the moment when we're getting everything in writing. We're not past that yet. Despite how I was upfront, it's morphed into "I'm paying you, so you should sign over rights to the code, and not expect to see much of a return because you're getting paid" – Brybam 7 years ago
  • He's making me think I'm nuts for expecting anything more since he took out the loan. So I'm just wondering if he's right and I should let it go. He could be right. I'm just considering my many roles and wondering I have good conscience to push for more. And finally, thanks a lot THEAO for taking time to just talk with me about this. You've been a great help already. Thanks! – Brybam 7 years ago

1

How much equity should startup Independent contractors get?

ZERO If you get equity - you're no longer an independent contractor. Working for a business you own (even if partially) has implications. 20% makes you a significant stake-holder, not a contractor.

So its quite obvious that your expectations are completely out of touch with what is being proposed to you ($12/hr + 2% profit sharing bonus). Obviously, if your counter-part wants the rights to the code for himself, he would probably want the rights to the company to himself either.

Is there anything you're bringing to the table other than coding skills? Because coders are easy to find, if you don't work with him - someone else will.

answered Aug 25 '13 at 07:20
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Littleadv
5,090 points

1

At $12/hr you would be dramatically underpaid. A decent iOS/Android programmer can get $100/hr.

If you're not being paid, you deserve equity but judging from your description, your 'friend' doesn't think that way. He started with a very unreasonable proposal ($12/hr) which you shouldn't accept. It's unlikely that he'll suddenly become reasonable.

Negotiate for fair value but be ready to walk away if you don't get what you want. That's your only leverage.

Never do work for vague promises of future gains. That just smells like a con man trying to take advantage of you. If it's not written in the contract today, you won't get it tomorrow.

Consider that if a game is successful and your friend makes lots of money, he'll have zero incentive to give you a percentage of that money. If you refuse to do more work, he'll just hire another programmer with that money.

Finally, consider that even if you do get 20% equity, it still might be a bad deal for you. Looks like you've already written a couple of iOS apps so you do know that the odds for any game to be successful are very, very, very low. The most likely scenario is that you'll spend a lot of time working for $12/hr and end up owning 20% of nothing.

During that time, you could be making $100/hr. During 6 month period, it's ~$85k difference, risk free. A game would have to make $425k in order for your 20% to be worth that much. It would have to make much more to adjust for risk.

You should consider the opportunity cost of making lots of money, risk free, working for people who can pay market rate for iOS programming skills (and there are a lot of them those days).

answered Aug 25 '13 at 19:00
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Krzysztof Kowalczyk
1,950 points

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