I've recently been approached by an experienced web entrepreneur who I know reasonably well to cofound a new venture with him. He brings all the technical knowledge, the idea and the initial execution know-how. My role is basically as a smart guy that can drive the process along and do some of the more laborious things that are absolutely necessary to push the business forward. I'm more of a commodity in that anyone with a few years of good professional experience and a solid educational background could probably do my role. That being said, the business doesn't get off the ground without me and he trusts me. It wouldn't be a full time job for me but more like 10-20 hours a week. Are there any suggestions on what a fair equity split would be in this situation? Are there any negotiating points I haven't been considering? Thanks
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It sounds like you're bringing straight labor to the venture, so you can quantify your contributon by measuring your wage rate times hours worked. Say 20 hours a week, $50 an hour, 52 days a year. That comes out to approximately $50K in contribution. If the venture is worth anywhere from $250,000 to $1,000,000 you can argue a fair share of equity would be between 5% to 25%. Of course, the experience could be very valuable to you so I would be careful how hard you negotiate. |
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This is a negotiation. There is no right answer. Don't value (undernmine) your contribution, let your partner value it. Do it through negotiation. Start at 50/50. The MOST important thing is to FORMALIZE the equity relationship right away. Don't leave it as something that will be figured out later. Don't let it be ambiguous. Don't be vague. Get it spelled out exactly, and formalize it legally. If you can't get a lawyer to do the contract, get some boilerplate off the web. But don't make the mistake of putting it off. |
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Try putting yourself in a position of the other side. You might also read what equity investors focus on by reading this http://www.online-business-advice.com/category/investing-guide/equity-investors-a-guide-becoming-warren-buffet.html. |
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