Ask HN: How to share equity and talk to a potential partner ?

[code_devil]

Hello folks,

I have been working on a application for a Social Networking Platform. I did a version 1 (designed DB, implemented backend, and the front end ) and released it to test it out. Now, I am adding another feature to it for which I need someone with a good front end experience as it's too time consuming and distracting for me. I found someone to help me with the front end(Flash, as he is good at it). We both will continue the development along with our existing full time jobs, so basically weekends/evenings. The idea is based on my understanding of the user base and other demographics. I am treating it like a fun side project with revenue if any being tied to advertising/virtual currency.

My question is how should the potential revenue be divided once he jumps into the project as a Front End Dev ?

[ i. I already did some work already(how to quantify that), ii. I am also paying for hosting, iii. I had the idea (even though it's not rocket science) ]

[DenisM]

Timeless piece: The Founders’ Pie Calculator

http://www.andrew.cmu.edu/user/fd0n/35%20Founders%27%20Pie%2...

[tptacek → DenisM]

How seriously should I take an equity allocation scheme that (1) ranks "writing a business plan" alongside "idea" and "execution" and (2) was written by someone who has never held an operational role in any company? (Yeah, I did look him up. 10,000 jobs created, you say!)

[DenisM → tptacek]

You are misrepresenting the paper - it requires assigning weight to each particular area. You can assign "business plan" smaller weight than "execution" if you and co-founders agree on the relative importance. But you have to have this conversation.

Also, the argument has value separately from the person behind it.

[code_devil → DenisM]

I had gone to Startupweekend last Fri - Sun. One of the teams had the following agreement.

http://fitlog.pbwiki.com/agreement-on-division-of-equity

[tptacek]

My take: don't divide the revenue; that's like dividing equity. If he's unreasonable, anything else you do in the future is going to infringe on his perceived royalty rights.

Think about coming up with a conservative estimate of what you'll do with this product quarterly, and offer him a flat $N, based on a generous share of that estimate, for any quarter in which (a) he has in that quarter contributed code to the most recent significant version released as of that quarter and (b) you made at least $N. You take the risk in weak quarters, and you retain all the ownership.

[pegobry]

I think there are no hard and fast rules about equity sharing. What matters is not so much what each has done as what each will do.

So the question is not so much what each side has done but the role you see your new partner taking in the future. If you two see each other as partners in the venture, the split should probably be something like 60-40.

If you see him as someone who will do a bit of front-end dev and then move on to other things, you should give him less.

Although of course, it's always a negotiation and is based very much on intangibles: how much you guys like each other, see yourselves working together in the future, how talented you think he is, i.e. if you think he's a star you should give him a big share of the pie to entice him and keep him involved in the project.

In general though, the guy who started the company (i.e. you) should get a majority of the equity and the people who come later should get equity/options based pretty much on an asymptotic curve with equity on the y axis and time joined on the x axis.

This might be a bit complicated for a side project but you should think about founder options to avoid the "YouTube syndrome" of one founder bailing early and still getting a big payday if it comes to that, and give your partner an incentive to stay involved over the lifespan of the project.

So basically, if you think of him as a full-fledged partner, it should be something like 60-40, and if you see him as less than that it should be something less, and you should think about founder options.

[code_devil → pegobry]

I am OK with the fact that if he is an equal contributor in this project that I would be happy to divide the revenue( or equity) equally.

However, I think I need to make it clear to him that I am taking a personal expense on the server cost as of now and into the future till if/ we make any money or just leave it behind as a fun project that we both collaborated on it. I think 60/40 sounds fair and reasonable. [I would love to hear other people's opinion on it]

A few questions further into it:

1. Say we do it 60:40 (informally say over email records), what happens if he works on for a while and ...

  a. does a good job and then decided to not continue for X reasons.

  b. does not get anything done for X reasons and decides to move out of it.
 

2. This is a pure fun project on the Social Networking platforms. So, it may or may not work like N other applications. Is this the right time to talk about it and how to bring this revenue sharing idea into the discussion without loosing the other parties interest?

[js3309]

50-50 or else the project will never get done!

[pegobry → js3309]

I'm no startup founder (yet!) but as someone who's worked with a lot of them when I was in law, that is the surest recipe for disaster, because as soon as there is a disagreement between the founders there is no one who can make decisions.

As one of my law profs (who also has tons of business experience) said to me: "If you remember two things from law school, it should be these: never share equity 50-50, and always have a prenup."

[bf]

Did anyone else read the headline as a request for spousal advice?