partnership, contracts, partners, ownership, earningsA couple of friends are starting some software projects with me (3 people total) and we are about to submit the products for sale.
We all have 50% to full-time jobs, no investment money was necessary to create the products and we don’t really know how much the products could make. Lastly, I hate to deal with money.
After reading here, here and here we came up with this method to start and would like some advice from more seasoned users here ;)
Combine the income of all projects together, that way we can switch projects without personal earning/profitability concerns. Also if a project doesn’t work at all people more involved in it won’t be affected.
We keep a big profits’ percentage (50%?) for “the company” future, for times when no product sells well, buy better working tools and grow.
The remaining percentage is a salary, divided by each’s “work share”: working hours invested in the projects. We can’t set salary amounts as the incomes are completely unknown.
3.1 The income for projects and work share are all dynamic ammounts adjusted constantly as projects sell more/less and people work more/less in them. People actually only “borrow” money from their salary percentage as they need limited by their current work share.
3.2 Salary money left at the company buys them “ownership” of the company. Some may see no interest or future in the company and take all their work share while some will prefer to not touch it at all and work more to keep a good ownership percentage.
Buy outs is the same as taking all of ones salary share from 3.2 and walking away from the company.
Decision making is made according to worked share.
Once we have an idea of the actual earnings in some six months we evaluate the experience and adjust the contract. Maybe buy out everyone and start fresh?
It’s crucial to know exactly how commited each member is. Will they ever quit their day job? How hard do they work? I know some people go months working for a venture before quitting, but if all team members do it then timing and true commitment becomes a huge challenge.
2.0 50% seems arbitrary. It should depend on the burn rate specific to the industry.
3.1 Is work valued equally across job types and performance? Efficiently taking action to validate a business model with an MVP is worth a lot more than planning or building dumb ideas that haven’t been tested.
3.2 assumes you can always agree on an accurate company valuation, which is not trivial before you prove your business model.
6.0 Who buys out everybody? Not so sure the team is worth much with only 1 person left.
I’ve only had experience in one startup, but I can tell you that full time commitment from a cofounder who works with you to sell/build something before it’s finished amazingly valuable; you are very lucky if all team members prove valuable and committed. Most people don’t have what it takes and give up. If your core members all have jobs but find something both enjoyable and highly profitable, then just go all in and quit your jobs with the minimum salary and maximum stock, split based on commitment level.
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