fundingI plan to launch a startup in partnership with one of my acquaintances. He has the idea and I would responsible for development. We are now at the first stage, negotiate about the shares, business plan, etc. He offered me 40% shares, for the App development, launch App through AppStore, and a smaller salary so I can focus on work, but small enough to be motivated and work hard. He would keep 60% because he is the founder of the idea, he does the management stuff. I think it is really generous especially if we will grow and become successful. One question has arisen for me:
Who will finance arising costs if latter we grow and need new colleagues, new infrastructure, bigger office, new computers, etc. How does it work by other startups? Do they renegotiate the proportion of shares?
You would typically create an initial product, take it to market and push it as far as you can. Then when you’re in need of funding you would turn to an investor. You show the investor what you have so far, what your business model is, who you have on your team etc. And then you tell him why your product will take off, if you only could get hold of some funding. He will either respond with “naah, I don’t believe in your venture”, or “Looks promising, here, have $100.000, give me 20% of the shares, and lets make this happen”.
There’s a balance here though: If you go to an investor too early, you might not be able to land a good deal, because you don’t have any hard facts on that your idea actually works. If you go to an investor too late, you might not be able to put food on your table, or worse, get behind in competition :-)
Personally, my recommendation is, apply for funding as soon as you have a good plan for how to invest the money. If you have money on the bank account, but no idea how that money is going to help you expand right now, then you could just as well have waited to apply for money until your business had a higher value.
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