equity, founder, stock-optionsA friend of mine is starting a product.
Since he has no current programming skills, he has bought a clone (for around $800) of an entire product.
The clone can go live just by doing minor changes in the code.
Now he wants me to join in, as a co founder.
How much equity in the company do I deserve considering
Main parts of product
(Note: Every part of the product is ready in clone, and product can go live with minor changes in code)
My role
As I am an iOS developer, I will be looking after future releases and bug fixes of iOS app.
Manage people, who will be looking after other technologies like android app and server deployment
All in all I will be the one, who will be looking after every techonological aspect of the company
My friend(Main founder)
Considering these facts, how much equity do I deserve in the company? (Considering the fact that I am not in the position to invest)
Also if we consider an android developer in the co founders team, how would we tackle dividing the company with a third person?
If you truly believe in this baby, offer him 400 bucks and suggest 50/50. That’s how I would do it.
he has bought a clone (for around $800) of an entire product.
You should run, not walk away. Because 1) That means anyone else can jump into the market for $800, and 2) are they even able to use it commercially? Check the licensing. You generally can’t “buy” software.
Every start-up is different, and the amount that the founder’s willing to ‘give away’ will differ as well.
You should be entitled to 50% because as a co-founder you’re in it together, equally. You’re starting it together.
He might argue that it’s unfair for you to get 50% because he’s invested $800 into the product, whereas your investment is $0, and if you want to own 50% then you should put up $400. But your time is your investment, and your skills and expertise cost money.
You’re in a good position to barter with him because, without you, he’s just spent $800 without the skills needed to develop it. And, if he paid you for the work, then it would be substantially more than $400 so it might be worth reminding him of that as well.
Personally, I’d ask for 50% because the products useless without you. Plus, if he’s asking you to be a co-founder then you deserve exactly that.
With all that said, it might be worth thinking ahead. That means if you’re keen to get more people on-board in exchange for equity, then consider offering/taking a lower percentage now and then you don’t need to have that awkward conversation about diluting shares later.
For example, there are three people in my company including myself. We have equal shares of 25% and a spare 25% for investment… because if we took 33% percent each now, then we’d have to dilute them for investment later anyway.
…I digressed a little. The bottom line is, you should have the same amount as your friend as you’re a partnership now. If he has 50% then you should have 50%. If he has 25% and wants to bring more people on-board, you should have 25% and want to bring more people on board.
Oh, just on a sidenote but sort of related: always keep business and friendship completely separate… or you’ll risk losing both.
You’re talking about what’s been spent so far ($800 in software, which you probably can’t use as evandentremont correctly points out). What you should actually be looking at is existing equity. What could you ask for if you tried to sell the company today?
Nothing.
Ideas are worthless until implemented, and software that can be bought on the ever-reputable cloned-applications-for-sale market are worth even less.
I don’t say this to dissuade you - if you think the project has potential, go crazy, see what you can do! But don’t deceive yourself - you’re starting from scratch, and your friend has yet to do anything for your venture other than start it off in the red.
My advice: your friend choose to spend some money before you joined, that’s not relevant to any equity discussions. You’re both going to contribute your time to making this successful, share the equity 50/50 and make future purchasing decisions together, and with more care. If you really end up using this software, he can be reimbursed out of your first $800 in profits.
It’s important to manage the personal relationship and stating you are entitled to 50% right now because of doing minor changes is not very fair.
A more agreeable solution (and complicated) is for you to be given 10% of the company now and awarded options to purchase some of his shares every 6 months for the next 2 years. If your code improvements keep the company going and help it be successful, then you can pay a nominal amount ($80 for ever 10%) to purchase an additional 10% every 6 months and after 2 years you will have 50%.
The founded keeps the majority of the company now if he doesn’t want your code edits in the future since, but will want you engaged to help maintain the app if its a success. This way you can show him you will stick around to help out with the company, build it, and earn your 50%.
This agreement require proper documentation to setup so do more research and no matter what you do, make sure it is in writing signed by both parties.
If your friend was able to buy a clone for $800, then his idea is both unoriginal and cheap (no offense intended, often the execution matters a lot more than the idea).
The money is almost irrelevant too because it’s so little. What could matter is how much time he has already invested in this but you’re saying he’s just starting.
So the only thing he’s bringing is his marketing skills. Therefore I think having an equal share is fair. Remember about the employee pool though, as pointed by the link Kevin gave. Of course, bring your own $400 to split the cost so there is not hard feelings later.
The Android dev should get equity in accordance to when they join and what they bring. If they’re coming before you make much progress, I think you should treat them as a cofounder and give them a sizable chunk. Otherwise, they’re more like an early employee. It’s hard to give specific numbers because it depends too much on when they join and their skills.
However, I’d be a bit worried buying a code base and being solely in charge of maintaining it, but that’s off-topic.
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