equity, business-plan, partnersI’ve build and beta tested (short, 2-hour sessions) an app with 60+ participants of my target audience. Results showed that the app has promise.
I don’t yet have statistically significant data that tells me this app’s purpose truly works, nor do I have any paying customers. The goal is to expand the app and run a full length pilot with customer which will get me this data.
At this point, I have done all the leg work in coming up with the idea, developing the app, designs, networking with demographic, and basic roots for business plans. To run a full pilot, I’ll need funding and a stronger business plan. For this I need a business partner.
At this stage, what is appropriate equity to give to someone?
This article states an earn in approach where they should meet milestones, incrementally giving equity as they “earn” it. But I’m sure my potential business partner would like to know the end equity.
So what’s a good estimate for equity at this early, early stage?
So in other words, you’ve a working app but no proven market, no investors, and an untested business plan. A good guide here FYI:
https://startups.stackexchange.com/questions/1885/how-much-equity-should-a-partner-with-a-short-term-commitment-be-entitled-to/1886#1886
TR;DR: Assuming a single cofounder, prepare yourself to let go of half of your company unless you’ve a product so rock solid that it’ll bloody obviously sell like hotcakes. Anything short of that, and your mindset really should be that you’ve been producing nothing of value all this time.
FWIW I’ve actually been on the receiving end of technical founders making me “my product is ready, please sell it” offers and expecting to let go of a token amount of equity for doing so. I drank the cool-aid twice: once very early in my career when I didn’t know better; the other a few years ago when I should have known better given the deja vu signals. I parted the founders after months and weeks respectively. Nowadays I simply refuse the notion of having a long-term relationship on unequal terms; when such offers arise I prefer to have a short term relationship to help the founders bootstrap things and move on.
The reason is that staying longer can leave a very sour taste in your mouth if there’s a disconnect between how high the founders think of what they’ve built and their target audience’s reception of the latter. It’s common for technical founders to waste months - sometimes years - building a product that won’t sell or barely will. And it’s very hard to accept that they’ve been wasting their time all along when they did. (I also know this first hand, having done it myself once. ;-) )
The sour taste arises when, after a few weeks, you raise that “what the market actually wants is that, we can funnel clients into buying it by putting these benefits forward, and there’s X months more of development to get there.” Should such a situation arise with your business partner, they’ll likely part if they’re not on equal terms with you by then… because anything short tells them that your time building the correct product going forward is worth much more than their time surfacing what you should be building and selling it. It’s not.
Obviously, if your product is already selling, and how you’re selling it is well understood, then you’re in a much more comfortable position to negotiate. Proceed with letting go of a much smaller share of your business if so - you might even even find find a gullible business type who agrees to get paid in funny money. Stay humble if not.
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