Ask HN: How to share equity and talk to a potential partner ?
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) ]
http://www.andrew.cmu.edu/user/fd0n/35%20Founders%27%20Pie%2...
Also, the argument has value separately from the person behind it.
http://fitlog.pbwiki.com/agreement-on-division-of-equity
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.
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.
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 ...
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?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."