Getting involved in startup, equity negotation advice?

[MissT74]

From what the OP posted, he (the other guy) cannot do what he wants to do (ie: open the business) without a website designer/programmer. So why should that person (the OP) only get 5%?? I'm thinking 20% sounds more reasonable. He (the other guy) can't start the business without a web designer/programmer and if he doesn't use you (the OP) he's going to use someone else. Sounds like he's just using you because he knows you and is gambling on the fact that you would be more willing to work for "free" then some other Joe Blow that he doesn't personally know.

IMO: 20% equity.

T

[lapoker17]

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From what the OP posted, he (the other guy) cannot do what he wants to do (ie: open the business) without a website designer/programmer. So why should that person (the OP) only get 5%??

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because he hasn't demonstrated to us that he brings anything to the table other than programming - which unless they are doing some super high level stuff is not by itself worth all that much.

if the original founder/sole investor does not have the cash to pay a programmer, then op certainly stands stronger in the negotiations, but i don't think he said that was the case.

when you are in early level start up situations, you have to have a passion for the business - like be insane for it - and op doesn't sound that excited about it. if i were the founder, i'd feel a little weird giving some guy who may not be fully committed to the business a 20% stake.

just for a little perspective...i was the 3rd memnber of a startup for 4 years - the other two were the founders. i brought a ton to the table - especially in areas the other two were weak. i worked 90-120 hrs a week for 3 of the years. aside from not being on the board, i was involved in every decision. when i left the company i had in the 5% range.

[durron597]

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From what the OP posted, he (the other guy) cannot do what he wants to do (ie: open the business) without a website designer/programmer.

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The startup IS a website. There is offline marketing work as well but the business model IS the website.

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when i left the company i had in the 5% range.

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Were there VCs inolved?

[z28dreams]

OP-

Basically, your goal here is to get as large of an equity stake as possible.

That means you need to come up with a role and a strategy for the company that's outside of web development.

Noone should ever give a large stake to just a developer, because it's a reasonably fixed cost. He could easily go out and hire someone to build this all out for him for something like $10-30k most likely, and then never pay a dime in the future.

You really need to focus on how you will bring value.

[Phil153]

It's hard to answer this without knowing how much creative input you're going to have. Will you be responsible for the higher level technical aspects and design decisions? Does the concept have current competitors? You're going to come up against a lot of tough decisions and tradeoffs, and depending on what you're doing, whether or not you make it will depend on how well you choose.

I think a lot of people are undervaluing the input of a good technical mind. The difference between a $1,000,000,000 facebook.com and a $1000 failedpicturehost.com can come down to a few key decisions in the layout and backend code. That's not to be undervalued when your core business revolves around how well code does its job.

I think Party Poker provides a good example of why technical input is so important. Ruth Parasol had the money to hire many teams of coders and people to write specs, but she gave a huge chunk of the company to 25yo Anurag Dikshit, in return for his technical expertise and oversight. His brilliance is the reason that Party Poker became #1, and she made hundreds of millions from his talent.

Since he's looking for a partner/ally and not just a codemonkey, I think your value (or at least what he'd pay for you) is quite high. I'd go 20+%. My only real concern is your lack of commitment in the OP - 20 hours/week isn't going to cut it when the [censored] hits the fan, which it will. Are you willing to add significant creative input, push harder when the [censored] the fan, and make sacrifices elsewhere? This willingness is the difference between a 20+% and <10% share in my opinion.

[WhoIam]

I’m going to slightly hijack this since it’s related to something I’ve been wondering about lately. Suppose I come up with a plan for a small/medium-sized business in SE Asia. I calculate startup costs and costs for the first several months of operation and decide I’m willing to put up 50% of that money. Two other people think my plan is feasible and would be willing to contribute 25% each, however I would be doing all of the work. I would choose the site, file all the paperwork, supervise construction, and probably spend at least 80 hours/week directly managing the business for at least the first few months. Am I entitled to more than 50% of the profits? If so, how would this be done? Would they say, pay 25% of the startup costs and receive a 20% stake in the business? I have no background in business so I don’t know how these arrangements usually work. This would most likely be something along the lines of a bar, hotel, or nightclub, not something with the potential for a lot of growth.

[durron597]

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I calculate startup costs and costs for the first several months of operation

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I think that this number is important. I think one reason for the disparity of comments in this thread is that there is a very, very large difference between a stake in a company with low to mid 5 digit startup costs and one where a VC gives something in the millions etc.

[schwza]

20% seems way too high. the main guy is working at least 2.5x as many hours, probably more, than the OP. he also had the original idea, is taking the lead on the whole project, and is taking all of the financial risk.

op, you should give us some more info on what you're talking about. it's not like if you say "it's related to helping businesses find customers (or whatever)" we're oging to go out and steal your idea.

[HoldingFolding]

It sounds like the first thing you need to do is sit down with Joe and the 3rd person & discuss this. I started my 1st company about 15 years ago & still remember the conversation. The set-up was similar - a guy with money, a guy with business skills & a guy with technical prowess. Posters saying 5% are seriously underestmating the degree to which Joe will be relying on & to a certain extent dependent on Durron. I'd say 20%.

When you arrive at a mutually agreeable set-up make sure you commit it to paper & have all 3 parties sign off on it. People often feel that between friends this shows a lack of trust, but it's essential.

[lapoker17]

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Were there VCs inolved?

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no. there was one angel and then some friends & family money. total cash raised was like 890k - i "big" round early then 2 small bridge rounds when we were struggling.

also i left out that i was an investor as well, so in reality i only walked with 4%ish that i didn't buy.