tech-company, equity, co-founder, profit-sharingOne of my friends owns the idea to create a new startup but he does not have the knowledge to do so.
At first when he told me about it he was planning to hire external companies to do the job and the technology - which I imagine it is very expensive- .
Now, as I know how the technology works and I actually know how to develop the idea, I proposed him to partner in the idea.
At first he loved the idea and discussed it with me. As I said , he is not a technical person and he will not take part of the code. If any,he would be giving the ideas.
As I feel that the idea is great, I was thinking about leaving my job and work full time on the idea.My offer was that he would not need to pay me.
Now, what he offered me is a 10% which I feel is not what I deserve.
I understand he will be making the initial investment.But I also believe that doing so does not mean that he needs to own 90% of the company when I’ll do all the technical work.
On the one hand , It is a true that he will be doing all the bussines related like meeting with investors and so on- and that my monetary investment would be $0.
On the other hand , I’ll risk a lot more time than he would,I’ll do all the technical work and I’ll leave my current work to be focused. He is planning to stay at his current job
I tried to argue with the fact that at first we can focus on returning his investment, but at the long rung it could not 90-10 as he proposed. He didn’t like the idea, and offered me back the 10%.
If I don’t agree, he told me he would be getting the job done from external companies.He told me that the price it would cost him is about $20000 which I really don’t believe it is true. I think this last behavior is part of his plan to get a bigger share.
Do you think It is fair to accept 10% when doing the core of the bussines?
On the other hand , I'll risk a lot more time than he would,I'll do all the technical work and I'll leave my current work to be focused. He is planning to stay at his current job
Emphasis mine. So, let's get this straight:
In other words you're taking 100% of the risk and doing 100% of the work for the foreseeable time. And you're wondering if you should accept a 10% stake in the company in return. To your credit, you're finding his offer "ridiculous". :-)
Start by reading Joel's Totally Fair Method to Divide Up The Ownership of Any Startup. Following it you should be laughing at your "friend's" face and telling him:
zero risk + zero investment + zero work = zero shares.
If anything you should be the one offering 1% as a courtesy for the idea. Maybe a few more percent for a few clients, investors, and advice on the side. Unless he quits his full time job and takes the same risks as you do, he basically deserves zero.
I assume your "friend" will refuse, so leave it at that. You wouldn't want to be doing business with this type of greedy person anyway - they're snakes.
Related reading:
Joel's equity guide does not fit my scenario. Equity for a technical cofounder?
An idea is worth 90%. That is ridiculous. People overestimate the value of an idea.
If he had a patent and a solid market and just needed a techy to implement then maybe. For me if I (not he) thought it was 4 man-months of work and could make $40K in the time. My risk analysis is I want an 80% chance of making $40K.
Ask him for a business plan with revenue projections. Ask him for bid that he can get it done for $20,000. If he had a great plan and could get it done for $20,000 then he should already be doing it.
“Ideas are worth nothing, only execution matters.” Your friend’s idea is in no way unique - be sure that at this very moment 100 other people in the world are already working on it. And all of them will come up with a different product - 1 of them will be successful. Could be you, too.
First, a few red flags:
1) when 2 people start a startup, best scenario is to have 50/50 shares, commitment and responsibilities. Otherwise, if you start with unequal commitment, later down the road when all the challenges appear 1 by 1, this will most likely lead to a conflict and co-founder split.
2) it’s HIS idea, still he wants to keep his full-time job and keep 90% - for 90% shares he should be totally ALL-IN.
3) If you’re a co-founder with 10%, then your friend should be investing around $1M into the company, working full-time on the business part - sales, marketing, fundraising. Plus, you should be getting a salary for your work.
However, such expectations are not uncommon for beginner entrepreneurs. Maybe it’s worth for both of you to try to become co-founders and learn on the way how startups work. The proposed setup will not get you far. A good idea is to start building the product step by step, nobody quits their job and you agree on XYZ amount of hours per week to commit to work on the company. That way you can explore your partnership and see if it’s going to work for you, then decide on next steps.
Ideally would be:
1) you get 50/50 shares 2) you commit the same amount of time per week 3) quantify your coding time and let your friend invest the same amount in cash. 4) set up a written agreement between you about these 3 points - in has legal weight too. 5) set a trial time frame - if it works, then register a company, quit jobs and go all-in!
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