

Show HN: Assembly – Help build a product, get a share of it - vvoyer
https://assembly.com

======
cmapes
I'm curious how this works with the legal landscape of US regulation.

I'm 99.9% sure the law would consider this equity compensation in exchange for
labor performed, since this is being positioned as "getting a share" of the
company. The only difference between standard "sweat equity in exchange for
labor" agreements and this is that there are "coins" that represent a certain
percentage of ownership instead of a standard contractual agreement bearing
stock certificates.

That opens up a whole can of worms in terms of questions:

\- Can the project owner further dilute the "coins" of the project, by
increasing the total coin count? (Can prior work be diluted, thus lowering
earning for prior work?)

\- What kind of financial reporting requirements to companies have that work
through assembly? Sarbanes oxley compliance? How do you know that they're
reporting accurate earnings and not short-changing developers?

\- Are these just "amorphous projects with a DBA" aka an informal partnership
or are they all required to be corporations or LLC's?

\- How about implicit liability?

If someone were to do an amount of work equal to 10-20% of a company's
ownership equity, and the company did something illegal, wouldn't the
developer have implicit ownership since he was profit sharing with the
company? Would this open the developer to potential liability? (disclaimer:
not an attorney, and it's been a while since I looked at related laws, but I
remember reading some surprising case law that implied this a while back.)

\- Possibly most importantly: How does this work with the SEC and IRS
regulatory landscape?

How is this viewed by the SEC? The SEC requires that any exchange of
securities be subjected to extreme regulations (you must take your company
public to sell shares to public investors). When I raised money for my angel
round, I had to seek SEC Rule 506(d) exemption just to provide shares to my
initial investor base and to sweat equity to myself and my founder.

Most SEC exemption types carry additional reporting requirements for companies
that have "non-qualifed" stockholders. This means monthly financial reporting
that is SOX compliant by a CPA among other things IIRC. For the record,
"qualified investors" have a net worth of $1mm+ or access to internal
information that allows them to make knowledgeable investing (or in this case,
investment of the developer's labor). These developers won't qualify simply by
developing software for the company, as they need to have access to executive-
level information.

In addition, SEC exemptions need to be filed by the actual companies in
question. Those exemptions have a window of time during which they're valid.
Different exemptions have different maximum non-qualified investor counts
before the company must go public. That may mean that there's a maximum amount
of different developers that can develop and receive sweat equity on a project
before it reaches a ceiling, depending on interpretation of the law.

Finally, how does this affect the developer's taxable income? If he were to
receive these equity shares (whether called "coins" or not), the IRS is going
to deem these coins as having some sort of a value, just like stocks do.
There's a lot of case law here, and typically it's going to work out to be
(company valuation / ownership percentage = effective income amount). The IRS
doesn't simply have you pay on dividends received from your equity, it has you
pay the value of the equity as income as well, so how about with these coins?
The IRS will see this as an asset received for labor, so how will this affect
the taxable income of the developer? Do you require the companies on assembly
to post a credible, running, monthly valuation by a 3rd party investment bank
for taxation purposes? How do you handle the possibility of phantom taxation?

I apologize if this seems negative, I think the idea is (potentially) pretty
sweet. I just hope you and your founding team talked with some good attorneys
before building out this business. As a startup CEO myself, there's a lot of
basic regulatory issues that I see with it which would have prevented it from
passing the initial "idea vetting" process.

~~~
awwstn
You’ve pointed out several of the biggest challenges Assembly has had to
overcome to get where we are today. But yes, they are big challenges.

Here’s how it works:

(I think I’ve addressed all your points here, let me know if I missed
anything)

Every product is structured as a partnership (similar to the way a law firm
can be a partnership). Everyone who earns App Coins in that product is a
partner – which entitles them to a portion of all profits in accordance with
their ownership percentage, along with access to business information and
direct involvement in decision-making. Those profits are paid out as
royalties, not dividends. There are other differences from securities, for
example, you can't transfer ownership of Assembly products on a secondary
market.

This solution is the best balance we’ve found so far.

Products built on Assembly live on Assembly (so that we can protect the
interests of anyone in the community who helped build them). So, revenue is
collected by Assembly, the bills are paid, and profits are distributed to all
partners (all of this is fully transparent). So, Assembly takes care of
financial reporting and products don't need to worry about things like LLCs
and DBAs.

Dilution occurs anytime that work is awarded, and a rogue Core Team might be
able to game the system to their advantage, but we have reasonable protections
in place to prevent this happening to an extreme.

I’d love to chat about this more if I haven’t covered all your questions. You
clearly have a good grasp of what we’re trying to do, and you asked all the
right questions. I’m at austin@assembly.com if you want to chat.

[edit: added the sentence about secondary markets]

~~~
bitsweet
_Every product is structured as a partnership (similar to the way a law firm
can be a partnership). Everyone who earns App Coins in that product is a
partner – which entitles them to a portion of all profits in accordance with
their ownership percentage, along with access to business information and
direct involvement in decision-making._

I wanted to clarify the above:

1) Though some have conceptually referred to products on Assembly _like_
partnerships they are __NOT __. They are neither structured as "Partnerships"
and are not housed in their own separate legal entity

2) Each product has a group of contributors that, through the rules we all
agree to abide by on Assembly
([https://assembly.com/terms](https://assembly.com/terms)), collectively
determine the strategy and product development as well as share in any
profits.

3) App Coins determine a contributors share of any profits and are awarded by
the product's Core Team made up from the community. App Coins aren’t
transferable, and aren’t exchangeable for other currencies. You can learn more
on how App Coins and profits work here
([https://assembly.com/help/revenue](https://assembly.com/help/revenue))

We have spent a lot of time thinking about some of the structural issues
raised here. They are the kinds of issues that we see many companies working
through as they try to fit new business models into existing rules and
regulatory schemes. We’ve done our best to create a structure that addresses
regulatory concerns while also maintaining the core principles on which we’ve
founded Assembly.

------
marbemac
Cool idea, but at this point it doesn't seem like a reasonable option for new
developers coming into projects.

For example, I picked Coderwall, which is the 2nd project listed on the
discover page. There are 11 tasks right now, with a total coin bounty of about
25k. Looking at the ownership, there are about 14.3 million coins allocated,
owned primarily by one guy. SO, if I clear out ALL of the tasks for Coderwall,
I will receive coins worth ~0.0017% of the project. If 100% of the stated $30k
revenue is distributed to coin holders (which it won't be.. gotta pay for
servers, etc), I will receive about $50/month for clearing out all of their
tasks.. I understand that revenue might grow, but that's a very small amount
nonetheless.

Maybe I'm missing something? Is that about how it works?

~~~
alhenaworks
I think the dynamics you touched upon are specific to coderwall, their revenue
model, their leadership, and their choice of stack(not that any of it is bad,
it has just created the situation you described), and you can't judge every
startup/product/team on assembly through the same lens. Only a few of the
products on assembly are profitable at this time, the majority of things are
in idea stage, and I think those projects are the ones where one can get the
most value for their work. Of course there is the risk that the product is
never completed or turns a profit, but that's all startups.

I'm all in on assembly, my current startups on there are:
[http://assembly.com/startl](http://assembly.com/startl)
[http://assembly.com/bootswap](http://assembly.com/bootswap)
[http://assembly.com/chatbotify-me](http://assembly.com/chatbotify-me)
[http://assembly.com/authorsimple](http://assembly.com/authorsimple)
[http://assembly.com/brytn](http://assembly.com/brytn)

products I did not start but am active on:
[http://assembly.com/cliq](http://assembly.com/cliq)
[http://assembly.com/dawn](http://assembly.com/dawn)
[http://assembly.com/okvaper](http://assembly.com/okvaper)

Startup ideas laying around I plan to put up there once I've got the ball
rolling on my current ones:
[http://transtartup.blogspot.com](http://transtartup.blogspot.com)

Assembly will prove valuable if people create value for the ideas put there on
the risk that it will pay off, and the smaller the team when the dev gets in,
the bigger of an impact and stake they can have/be rewarded.

------
keeptrying
So CoderWall is their first product and I did a little fishing and 1 guy is
doing all the coding as I suspected ...

[https://github.com/assemblymade/coderwall/pulse/monthly](https://github.com/assemblymade/coderwall/pulse/monthly)

And in this case the guy gets a much smaller piece of the pie than a founder
would.

Too Little incentive for the kind of people you need in a startup.

~~~
bitsweet
Just a heads up, Helpful was actually the first Assembly product.
([https://github.com/asm-helpful/helpful-
web/pulse/monthly](https://github.com/asm-helpful/helpful-web/pulse/monthly))

Its a community effort so some people have more time then others in a month
and products on Assembly each have their own ebb and flow. It does look like
just3ws did alot in October but those are probably mostly merge commits
(just3ws is on the Core Team). All the partners still shared in last month's
proceeds for their previous contributions though.

Disclosure: I work on Assembly

~~~
keeptrying
I'm sure if you shake the data a little more you'll see that a very small
minority do most of the work.

This has always been true - in corporations, in teams within corporations and
in startups.

I think you should evolve your product to reflect and incentivize this rather
than fight it. Give the core guys the most equity - figure out a good way to
calculate who those people are. Its a problem that mankind has been trying to
solve forever.

Instead of focussing on community, focus on creating a system that is secure
for someone to start working immediately with the core-team. With deep git
integration you could have somethign worthwhile there.

~~~
busterarm
How do you deal with people who make it difficult for others to work on the
project to increase their own share? This is typical behavior of ladder-
climbers in companies already.

Is community not part of the answer to that problem?

~~~
keeptrying
I think a project that attracts that kind of person is already pretty
successful.

------
jawns
Interesting idea. This is kind of like Quirky
([https://www.quirky.com](https://www.quirky.com)), but instead of
collaborative production of consumer products, it's creating software.

I read through the "Our Story" page, but I still couldn't figure out whether
Assembly is organized as a true cooperative (100% member-owned). I see a
"Shared Ownership" bullet point, but there's nothing explicit about it being a
co-op.

------
hcarvalhoalves
OT: I wonder how one gets a domain like this?

~~~
userbinator
I'd guess the same way one gets any other domain - by purchasing it.

The choice of name isn't bad but at first I was confused for a moment and
thought it was about something at the demoparty of the same name:
[http://www.assembly.org/](http://www.assembly.org/)

------
J_Darnley
Something I can browse without allowing javascript. I am pleasantly surprised.

------
zealon
What about foreign contributors? What laws and rules apply to us?

------
stephenhandley
"all products on Assembly are licensed under AGPL, and by agreeing to our
terms of service you also are granting non-exclusive rights to Assembly to
monetize this IP on behalf of the community (and you)."

------
crazychrome
I couldn't even finish watching the intro video. it's boring! And I guess it's
another trap to suck up my fb/twitter/github/trello contacts/info so that I
can do forum/email/IM/project management/crowdfunding/flirting with my own
contacts all in one place under another name/concept.

\- "Work together" is not a selling point. I just want to make things, I'm not
interested in yet-another-social-network.

\- "Community" is not a selling point. There are no such thing as community,
there are individual men and women.

\- "Focus on what you like" is a lie. I bet all I can do on this platform is
communication, nothing more.

\- "Keep your share", oversell?

