equityI have a new venture: A website that deals in Travel. I own 100% and am more than capable of bring it and a whole range of products and services to market. I’ve done it before. It is selling well, and I’m expecting profitability soon.
Inside this website I would like to develop an additional service that requires more techical skill than I can muster. It is quite heavily mathematical and I’d like to bring other people onboard to help with specifically this subproject only.
The service’s offering would be initally sold through my website and subsequently could sell directly, in a spun off form, or merged into my operation.
I intend to setup a new incorporation specifically to perform this service. The idea being that it doesn’t affect the equity of the mother-ship website
I’ve found a contractor who is prepared to work at 50% his normal rate in return for 50% equity of the subproject. I will be paying his salary from my savings. There are no VCs.
I believe he has the technical capability to do this although it is a bit of a moonshot. It is probably 3 months before we see if its a “Go” - and maybe 1 year to market. Is this a reasonable split?
My feeling would be that he is still getting “some” pay, so I’m bearing more of the risk, so should take more of the equity.
Please feel free to give quick feedback on this specific situation - I’d really appreciate some heads-up on this!
Do you have money to pay him for 1 full year? If not, then don’t even start..
Imagine if you are in the middle of the project and you runs out of money. You’ll find yourself in a bizarre situation with 1) no money 2) 50% less equity 3) an angry partner/employee.
Like @HenryTaylor have already mentioned, you could wait until your core service start making (more) money and with that you could pay the technical guy without bleeding your equity.. (or even give him a minor stack just to keep him motivated).
Another thing to keep in mind is how difficult it is to split - legally speaking - the sub-product/service from the main one.
You could be setting up a time bomb for yourself if you don’t get proper advice on the contract - I’m assuming you were thinking in put all the terms in a contract, right?
So, my advice is don’t rush yourself.
But if you are really thinking about make this sub-project happen NOW, try to find a technical partner who is willing to go full commited with you : 50% equity, no salary.
I know it is tough, but maybe we’re facing one of 2 situations here:
1. Your sub-project is not sexy enough (so people want money to work for it)
2. You are not selling the idea in a sexy way (maybe is a great idea, but people are not buying your vision).
Regardless of your answer you’ll have some homework to do.
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