equity, sharesSo 6 months ago I was approached by a friend regarding a startup idea he and another friend had. It was understood that, as there was no money in this idea yet, I would not be getting paid for my work until the company actually became a company, at which point I would receive a percentage of the company.
I was brought on along with two other friends of mine, one of whom did not work out and was later let go. I originally joined with the intent of being the front end developer (HTML, CSS, would assist remaining friend with JavaScript when needed). My friend would be the back end developer as well as JavaScript.
Fast-forward to now and I’ve created the entire front end, entire back end server & database. The company (still not legally a company) brought on two more people, one that primary works as a market researcher (was brought on about 4 months ago) and a project manager (brought on this month). It may be worth noting everyone at the company (sans market researcher) attends the same college.
It was recently stated that my friend, the two other hires, and myself would all receive 5% of the company.
I have next to no knowledge or experience with this, but 5% was less than I had expected. Given the amount of free work, effort, and expertise I have brought to the table, 5% does not feel fair. Pair that with the fact I have done considerably more work than the other employees, and yet have been offered the same percentage.
So the question here is, is 5% normal? Is it fair considering the work that’s been done?
Does the company have a business plan?
No
What work have the founders done?
They handle the entire business side of things. This will include talking to investors as well as marketing.
Has the product been priced?
No
Will the company be bootstrapped (self-funding), or is the intention to attract investors?
Currently being bootstraped, but the intention is to switch to investors.
Has there been any discussion of salary?
No
Does anyone in the company have any business experience at all?
The founders are in a business program at the college, I’m unaware of any other business experience.
Regarding the possible duplicate, while the main question may be similar, the situations are definitely not.
Do not just look at the percentage (5%). Often this value can be high. Look:
Company Value 5%
$ 10,000.00 $ 500.00
$ 50,000.00 $ 2,500.00
$ 100,000.00 $ 5,000.00
$ 200,000.00 $ 10,000.00
$ 500,000.00 $ 25,000.00
$ 1,000,000.00 $ 50,000.00
Ask yourself, Based on the information, reliability, availability, market potential of the idea, is this enough for you?
You must remember that you are investing your time which is in fact money in some sense. In fact time is worth more than money so spend it wisely. If you are still learning it might be worth it but you should consider deciding on how much time you are willing to put into it. If you have put 100 hours and each hour could’ve given you 100 USD it’s effectively 10000 USD you are investing.
An idea is basically worth 5% of the company. An idea is nothing without execution and you need to have the right people on the team. I have had a fair share of startup projects and I have learned a great deal and now have a more pessimistic approach to anyone who comes to me and say “Hi, I have an idea, let’s split 50/50”.
You need to decide what your time is worth, how much more you are willing to invest and decide when it’s time to pull the plug and leave. It’s things that should have been decided from the start but running ventures is great fun and can trigger great excitement.
Perhaps you should even suggest that every one uses something like a time tracker (toggl) and record their working hours.
You should be careful with releasing your sourcecode and don’t proceed with anything until you have an written agreement, and record your meetings concerning the percentage as well.
Good luck!
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