Equity in a startup
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Can someone suggest how much equity should I ask for in an IT product company for which I am the only developer and support person. I design, develop the s/w and provide implementation on client side and also provide support for it on an as needed basis. I'll also contribute to the overall vision and strategic placement of the product. There is only one other person involved and that person is the owner of the company. He does the marketing, sales, legal and all other activities. This guy is very passionate about the project and so am I. I just want to make sure when the project hits off and revenues start coming in he does not ditch me and reap of all the benefits himself and lauch a full-blown IT department without including me, etc. Should it even be based on the equity or some sort of profit sharing. Please give me your thoughts/suggestions. Thanks.
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Can someone suggest how much equity should I ask for in an IT product company for which I am the only developer and support person. I design, develop the s/w and provide implementation on client side and also provide support for it on an as needed basis. I'll also contribute to the overall vision and strategic placement of the product. There is only one other person involved and that person is the owner of the company. He does the marketing, sales, legal and all other activities. This guy is very passionate about the project and so am I. I just want to make sure when the project hits off and revenues start coming in he does not ditch me and reap of all the benefits himself and lauch a full-blown IT department without including me, etc. Should it even be based on the equity or some sort of profit sharing. Please give me your thoughts/suggestions. Thanks.
If you're writing the product, then it sounds like a 50/50 situation to me. Neither one of you would go far without the other.
Christian Graus - Microsoft MVP - C++ Metal Musings - Rex and my new metal blog "I am working on a project that will convert a FORTRAN code to corresponding C++ code.I am not aware of FORTRAN syntax" ( spotted in the C++/CLI forum )
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If you're writing the product, then it sounds like a 50/50 situation to me. Neither one of you would go far without the other.
Christian Graus - Microsoft MVP - C++ Metal Musings - Rex and my new metal blog "I am working on a project that will convert a FORTRAN code to corresponding C++ code.I am not aware of FORTRAN syntax" ( spotted in the C++/CLI forum )
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Can someone suggest how much equity should I ask for in an IT product company for which I am the only developer and support person. I design, develop the s/w and provide implementation on client side and also provide support for it on an as needed basis. I'll also contribute to the overall vision and strategic placement of the product. There is only one other person involved and that person is the owner of the company. He does the marketing, sales, legal and all other activities. This guy is very passionate about the project and so am I. I just want to make sure when the project hits off and revenues start coming in he does not ditch me and reap of all the benefits himself and lauch a full-blown IT department without including me, etc. Should it even be based on the equity or some sort of profit sharing. Please give me your thoughts/suggestions. Thanks.
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every single line, except for the ideas/stuff taken from the codeproject, open source and integrated.
OK, then 50/50 is more than reasonable, assuming you're not being paid to write it. Kind of silly for you to write anything without that being established. On the other hand, if you're being paid, at all, then it's a bit murky.
Christian Graus - Microsoft MVP - C++ Metal Musings - Rex and my new metal blog "I am working on a project that will convert a FORTRAN code to corresponding C++ code.I am not aware of FORTRAN syntax" ( spotted in the C++/CLI forum )
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Equity and make sure it's legally binding, otherwise 2 years down the line you'll regret it.
.net is a box of never ending treasures, every day I get find another gem.
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Can someone suggest how much equity should I ask for in an IT product company for which I am the only developer and support person. I design, develop the s/w and provide implementation on client side and also provide support for it on an as needed basis. I'll also contribute to the overall vision and strategic placement of the product. There is only one other person involved and that person is the owner of the company. He does the marketing, sales, legal and all other activities. This guy is very passionate about the project and so am I. I just want to make sure when the project hits off and revenues start coming in he does not ditch me and reap of all the benefits himself and lauch a full-blown IT department without including me, etc. Should it even be based on the equity or some sort of profit sharing. Please give me your thoughts/suggestions. Thanks.
It all depends. Do you think the idea has legs? Even if it does, is your partner smart and talented enough to get the sales and turn a profit? Regardless, you should be working with a contract. That contract should specify exactly what your responsibilities are and so forth. If you do go with owning part of the company, make sure you detail what will happen when you bring on new partners and dilute the ownership. (I've known people who started out with a good stake in the company, but had their shares turned into B shares and then so diluted that they basically walked away with nothing.) If you create an LLC or S-Corp, make sure you have a written agreement about how much profit taking you'll do (in both cases, company profits are reported on personal income tax, but you tend to leave some, or all, of that profit in the company bank account. Problem is you have to make up the tax payment somehow and you better agree in writing on that how.)
Anyone who thinks he has a better idea of what's good for people than people do is a swine. - P.J. O'Rourke
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Of course. No discussion you may have is going to stand in court. Only something that's legally binding can protect you. No matter how friendly you are now, you should insist on this. As a contract developer, I tend to insist that people give me an NDA, because my good intentions mean I have nothing to lose in signing one, and they deserve the peace of mind it offers. This is the same deal. If he has no intention to screw you, why would he refuse or be offended to put it in writing ?
Christian Graus - Microsoft MVP - C++ Metal Musings - Rex and my new metal blog "I am working on a project that will convert a FORTRAN code to corresponding C++ code.I am not aware of FORTRAN syntax" ( spotted in the C++/CLI forum )
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Can someone suggest how much equity should I ask for in an IT product company for which I am the only developer and support person. I design, develop the s/w and provide implementation on client side and also provide support for it on an as needed basis. I'll also contribute to the overall vision and strategic placement of the product. There is only one other person involved and that person is the owner of the company. He does the marketing, sales, legal and all other activities. This guy is very passionate about the project and so am I. I just want to make sure when the project hits off and revenues start coming in he does not ditch me and reap of all the benefits himself and lauch a full-blown IT department without including me, etc. Should it even be based on the equity or some sort of profit sharing. Please give me your thoughts/suggestions. Thanks.
Get as much as you can :) Seriously. 50% sounds about right if you are the only one who will be dealing with the implementation details. I've ran across so many people with 'ideas' but not the know-how who assume that an idea is a rare thing. I try to manage my dev projects with the thought in mind that my time is valuable. So, if I am not going to get paid now, I damn well better get some meaningful compensation for my time. Also, ask yourself if this project is in alignment with your goals. Nothing is worse than stepping through a debugger at 3am on a project that you have little faith or interest in when you are not getting paid. -- modified at 14:51 Monday 26th March, 2007
My Blog A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects. - -Lazarus Long
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Can someone suggest how much equity should I ask for in an IT product company for which I am the only developer and support person. I design, develop the s/w and provide implementation on client side and also provide support for it on an as needed basis. I'll also contribute to the overall vision and strategic placement of the product. There is only one other person involved and that person is the owner of the company. He does the marketing, sales, legal and all other activities. This guy is very passionate about the project and so am I. I just want to make sure when the project hits off and revenues start coming in he does not ditch me and reap of all the benefits himself and lauch a full-blown IT department without including me, etc. Should it even be based on the equity or some sort of profit sharing. Please give me your thoughts/suggestions. Thanks.
Sorry for maybe asking a dump question, but are you looking for a partnership? If you are talking about a partnership I think the ownership can't be 50/50, because when it comes to the point to make a decision and you can't get a compromise one of you has to decide. So one of you should own 51% of the company. Talking about money isn't that easy. The company has expenses, right? Are you going to split them the same way? Did you get payed for the work you are doing for this company? If you get paid and the owner has to pay for all the expenses, 50/50 won't be fair. If you don't get payed I guess you have to figure out how much your work is worth and how much he spends for all the other things and how much his work is worth. If it is equal, 50/50 is fair. When it comes to buying out one of the partner (let us call partner A the one who wants to buy the other out), I would suggest that partner B gets the right to give partner A the same amount to buy him out and partner A can't refuse. Arrgs, does this make sense? I will explain what I mean. Your company makes good money (let's say an annual revenue of $500,000) and your partner says "I will buy you out. I will give you $10,000" you should be able to say "No, but I will give you the $10,000 and buy you out" and he can't refuse the offer. This way you will make sure you won't get cheated (especially if he is the money guy). Hope this helps. Stephan
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Can someone suggest how much equity should I ask for in an IT product company for which I am the only developer and support person. I design, develop the s/w and provide implementation on client side and also provide support for it on an as needed basis. I'll also contribute to the overall vision and strategic placement of the product. There is only one other person involved and that person is the owner of the company. He does the marketing, sales, legal and all other activities. This guy is very passionate about the project and so am I. I just want to make sure when the project hits off and revenues start coming in he does not ditch me and reap of all the benefits himself and lauch a full-blown IT department without including me, etc. Should it even be based on the equity or some sort of profit sharing. Please give me your thoughts/suggestions. Thanks.
You are very late in asking this. This should have been made very clear and arbitrated by an attorney before you ever got this far. Now you better hope this other guy is honest and has integrity because you are wide-open to mischief (depending on the local laws of your land).
My name is Maximus Decimus Meridius, Commander of the Armies of the North, General of the Felix Legions, loyal servant to the true emperor, Marcus Aurelius. Father to a murdered process, husband to a murdered thread. And I will have my affinity, in this life or the next. - Gladiator. (Okay, not quite Gladiator but close.) I work to live. I do not live to work. My clients do not seem capable of grasping this fact.
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Can someone suggest how much equity should I ask for in an IT product company for which I am the only developer and support person. I design, develop the s/w and provide implementation on client side and also provide support for it on an as needed basis. I'll also contribute to the overall vision and strategic placement of the product. There is only one other person involved and that person is the owner of the company. He does the marketing, sales, legal and all other activities. This guy is very passionate about the project and so am I. I just want to make sure when the project hits off and revenues start coming in he does not ditch me and reap of all the benefits himself and lauch a full-blown IT department without including me, etc. Should it even be based on the equity or some sort of profit sharing. Please give me your thoughts/suggestions. Thanks.
Please, please get an attorney now. There are a thousand or more ways of getting screwed in your current position. All it takes is someone to come along and offer him 3 million for the product, and you're toast. Don't be bashful about this, it is a purely professional and business decision to put this relationship in writing. If he hesitates, you have your answer.
Charlie Gilley Will program for food... Whoever said children were cheaper by the dozen... lied. Yeah, whatever....
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Form a corporation, and have very thorough legally binding corporate documents. Also, have detailed formulas for calculating how much each of your contributions would be worth at any given time, in case one of you wants to 'bail out'. Also, have explanations for how one of you would bail out - first right of refusal of remainign partner to buy out, etc. - I mean, without this stuff in writing, you could legally sell all your stake in the company to your brother in law, and your partner would STILL have to find another developer! Decide how or when the ownership of software would transfer to this corporation - once you gained certain incomes or something, otherwise you have contributed a large part of the effort and the corporation has no other inhereent value until sales are made. You could also decide that you own the software and perhaps 'exclusively' license it to the corporation for a specified amount of time. That way, once you are done your partner has a certain period of time to make substatnial sales, otherwise the license expires and you are free to take it and find another marketeer. Get a laboratory notebook and keep track of ALL the time you spent on it and any expenses. You might find that information comes in handy during tax time or during a legal standoff.
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Sorry for maybe asking a dump question, but are you looking for a partnership? If you are talking about a partnership I think the ownership can't be 50/50, because when it comes to the point to make a decision and you can't get a compromise one of you has to decide. So one of you should own 51% of the company. Talking about money isn't that easy. The company has expenses, right? Are you going to split them the same way? Did you get payed for the work you are doing for this company? If you get paid and the owner has to pay for all the expenses, 50/50 won't be fair. If you don't get payed I guess you have to figure out how much your work is worth and how much he spends for all the other things and how much his work is worth. If it is equal, 50/50 is fair. When it comes to buying out one of the partner (let us call partner A the one who wants to buy the other out), I would suggest that partner B gets the right to give partner A the same amount to buy him out and partner A can't refuse. Arrgs, does this make sense? I will explain what I mean. Your company makes good money (let's say an annual revenue of $500,000) and your partner says "I will buy you out. I will give you $10,000" you should be able to say "No, but I will give you the $10,000 and buy you out" and he can't refuse the offer. This way you will make sure you won't get cheated (especially if he is the money guy). Hope this helps. Stephan
"I will buy you out. I will give you $10,000" you should be able to say "No, but I will give you the $10,000 and buy you out" and he can't refuse the offer. I wish I had one of those before ... :sigh:
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Can someone suggest how much equity should I ask for in an IT product company for which I am the only developer and support person. I design, develop the s/w and provide implementation on client side and also provide support for it on an as needed basis. I'll also contribute to the overall vision and strategic placement of the product. There is only one other person involved and that person is the owner of the company. He does the marketing, sales, legal and all other activities. This guy is very passionate about the project and so am I. I just want to make sure when the project hits off and revenues start coming in he does not ditch me and reap of all the benefits himself and lauch a full-blown IT department without including me, etc. Should it even be based on the equity or some sort of profit sharing. Please give me your thoughts/suggestions. Thanks.
>Should it even be based on the equity or some sort of profit sharing. It would be a very strange type of equity that didn't involve profit sharing. The whole point of owning a company is to benefit from the earnings stream. There are only two ways to make money from a company: - Sell your share to someone else for more than it cost you (either in $$ or in time * $value per hour) - Receive an income stream from the company which, over the life of the company, again exceeds the costs you put in. First of all, you need to know your costs. Ok, so it's time, but you need to keep track of how much time you spend, then give yourself a nominal hourly rate to calculate how much effort you've put in. Then you and your partner need to construct exit agreements as others have covered- but you also need to agree on the value-harvest strategy for the company - do you hope to be acquired within three years, or are you both looking for a 20 year stint as leaders of an ever-growing empire? By focusing on what you both want out of the company, it will be easier to construct the constractual documents in a way that suits you both. It's easy to forget that a contract should be a written version of what you agree on, not some type of document which doesn't reflect your wishes and plans for the company. You can also postpone all of this until the project is closer to fruition. If you have an agreement that the code is your IP until you licence it to the company, then legally you're a lot stronger, although code can be written by someone else. Then as someone else said, you can license the software to the company for a set period of time, and have options on the company acquiring the licence agreement for either more equity or a cash payment (or you may find it hard to get acquired if the buying company can't get an exclusive licence)
Bruce Chapman iFinity.com.au - Websites and Software Development Plithy remark available in Beta 2
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Sorry for maybe asking a dump question, but are you looking for a partnership? If you are talking about a partnership I think the ownership can't be 50/50, because when it comes to the point to make a decision and you can't get a compromise one of you has to decide. So one of you should own 51% of the company. Talking about money isn't that easy. The company has expenses, right? Are you going to split them the same way? Did you get payed for the work you are doing for this company? If you get paid and the owner has to pay for all the expenses, 50/50 won't be fair. If you don't get payed I guess you have to figure out how much your work is worth and how much he spends for all the other things and how much his work is worth. If it is equal, 50/50 is fair. When it comes to buying out one of the partner (let us call partner A the one who wants to buy the other out), I would suggest that partner B gets the right to give partner A the same amount to buy him out and partner A can't refuse. Arrgs, does this make sense? I will explain what I mean. Your company makes good money (let's say an annual revenue of $500,000) and your partner says "I will buy you out. I will give you $10,000" you should be able to say "No, but I will give you the $10,000 and buy you out" and he can't refuse the offer. This way you will make sure you won't get cheated (especially if he is the money guy). Hope this helps. Stephan
This is likely to be a bit more complicated than 50/50. Do you get paid? If so is the 'owner' funding this out of his money? Is the 'owner' paying himself? In these circumstances it is relatively common for an 'owner' to borrow money/spend savings to build a business - but take nothing out so that the business has a chance. If that is the case the 'owner' is probably banking on building up his investment and I don't think he will be motivated to give away both equity and cash if there is little rolling in yet. If you demanded 50% in those circumstances he might decide that this was a good time to start taking a wage out himself and can the company survive that? In these circumstances then two thoughts occur to me: 1. A minority equity stake to help 'tie you in' so that you are both incentivised and unlikely to walk - a classic win/win. 2. You offer to buy a larger equity stake to help defray costs and give the company a better shot - but not by means of reduced pay. Make it clear that your pay is separate and that you are looking to invest capital. Value the company at, say, an average of three months company costs (payroll, accountancy, offices, software, hardware etc). As long as the company in incorporated then the transfer of the shares is as legal as you need to get. A 10% equity stake to recognise your worth and likely problems if you walked plus a purchase of another 10% would be a nice chunk in case the company goes YouTube. Of course if you suddenly realise that it costs 20,000 to run the company for three months and you start to add up the revenue and earnings and there is a big gap - it will be easy to see whether the company has a future. Some DotCom2.0 companies (like YouTube!) can be worth a fortune regardless of revenues - but I'm not sure how many ideas will be so valuable. At the end of the process you may feel more comfortable being a paid employee of a company that goes bust than a director. As a Director you may feel obliged to take a pay cut or defer pay entirely - not something that you need to accept as an employee. Also as a Director you have responsibilities in terms of number of years of maintaining records, tax return differences, legal responsibilities etc. Oh and in this sector don't touch any business model that does not feature limited liability (a Ltd company in the UK, for example). Still want a stake? A. Melvin
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Can someone suggest how much equity should I ask for in an IT product company for which I am the only developer and support person. I design, develop the s/w and provide implementation on client side and also provide support for it on an as needed basis. I'll also contribute to the overall vision and strategic placement of the product. There is only one other person involved and that person is the owner of the company. He does the marketing, sales, legal and all other activities. This guy is very passionate about the project and so am I. I just want to make sure when the project hits off and revenues start coming in he does not ditch me and reap of all the benefits himself and lauch a full-blown IT department without including me, etc. Should it even be based on the equity or some sort of profit sharing. Please give me your thoughts/suggestions. Thanks.
Get the equity in writing and witnessed by a lawyer. you are in the place I was 10 years ago. I have been well shafted by my "mate" (sales and marketing)who now seems to think that he owns the company we started together. Though this guy was a lot more experienced than me his marketing ideas were rubbish and old fashioned. I have had to design all the products and also fight his out dated marketing methods as well. What matters to these guys is how much money you invest (the risk), they think your time is free and therefore "worthless". I now look after a team of 12, pray my invoices gat paid every month and wait for the axe. I have a tiny house and a 4 year old pickup truck. Before I met this guy I was earning £100,000 a year :(
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Can someone suggest how much equity should I ask for in an IT product company for which I am the only developer and support person. I design, develop the s/w and provide implementation on client side and also provide support for it on an as needed basis. I'll also contribute to the overall vision and strategic placement of the product. There is only one other person involved and that person is the owner of the company. He does the marketing, sales, legal and all other activities. This guy is very passionate about the project and so am I. I just want to make sure when the project hits off and revenues start coming in he does not ditch me and reap of all the benefits himself and lauch a full-blown IT department without including me, etc. Should it even be based on the equity or some sort of profit sharing. Please give me your thoughts/suggestions. Thanks.
Again, like people already said, you're in trouble. You have no legal rights over this sw, so get anything you can as soon as you can.
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Can someone suggest how much equity should I ask for in an IT product company for which I am the only developer and support person. I design, develop the s/w and provide implementation on client side and also provide support for it on an as needed basis. I'll also contribute to the overall vision and strategic placement of the product. There is only one other person involved and that person is the owner of the company. He does the marketing, sales, legal and all other activities. This guy is very passionate about the project and so am I. I just want to make sure when the project hits off and revenues start coming in he does not ditch me and reap of all the benefits himself and lauch a full-blown IT department without including me, etc. Should it even be based on the equity or some sort of profit sharing. Please give me your thoughts/suggestions. Thanks.
I was in your same situation, and all I can say is you should take a look at your contract. If you're hired as a programmer and you're paid to program this application, the program belongs to your contractor. Unless it's something different in your contract.