Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 4 down vote favorite

I have a SaaS concept that I came up with the idea for and have been developing a business plan and wireframes, user flows for the last 6 months. I'm not ready to shift this to design and development to bring it to alpha. I also have some cash to help fund.

I would like to bring on a technical co-founder to balance my skillset (UX & Marketing), however also require a designer and front-end developer. We'll all continue our full-time roles, so would be completed out of hours. My question is how to divide equity when they are also offered a low cash renumeration:

a) What's a realistic % to offer a technical co-founder coming on at this stage, 30%?

b) Would you recommended offering the designer and front-end developer equity, e.g 5% each? I can offer them a low cash offer in addition (approx. $10k each), but want to keep them incentivized to stay on as the founding team. I think they both have a lot to offer. Or do you recommend just to outsource these roles for alpha?

c) What happens to my invested money, e.g if I invest $40k of my own cash for alpha? If I take a 60% Share (60/30/5/5) of equity, how do I account for the $40k? Is it best to treat this like a company loan at 5% return or is this just considered part of my investment for 60% ownership?

Thanks!

share|improve this question

2 Answers

up vote 2 down vote

I think all of this is contingent on your ability to convince a technical partner that you can acutally market this app/make some money. Then you can get and idea from potential candidates of how much salary they require. More salary is less risk for them, so give them a lower percentage if any.

You'll also have to determine where your tech partner lacks in expertise. This person may be able to build the frontend, but not be very good at desigining a database for example. Obviously, you're worth more equity if you have to pay for these additional consultants. Yes, I would hire consultants at this point and not give equity to what should be part-time work collecting a stipend.

If you're paying all the salaries, I think you should get your money back as soon as possible. However, early on, the tech partner is going to be doing nearly all the work minus the consultants. Without the code, you have nothing but an idea.

Keep us posted. Many people ask these types of questions on this site, but we get very little feedback on what transpired.

share|improve this answer
Thanks Jeff, will do. I'm interested in your third paragraph. I've done some reading on this, but I'm not clear how the cash is treated in this situation. Should it be absorbed as part of my equity stake, or held separately as a loan to the company with interest that gets repaid. Also, in your recommendation, if I pay the front-end dev and designer, I would then consider splitting the equity 70/30 with tech founder, with a vesting schedule over four years, 1 year cliff. Does this sound reasonable? Thanks. – PaulR Sep 1 '10 at 17:03
up vote 1 down vote

30%? Vesting schedule? I think you guys are overvaluing the value of coming up with the idea. Ideas are a dime a dozen. Execution is everything. Coming up with an idea is worth no more than 5%.

Assuming that you're not bringing in any guaranteed customers, or a boatload of existing traffic to drive to the site; then you are coming in with some money, an idea, and some marketing experience. The technical co-founder would be coming in with some time, perhaps some money, and some technical experience. Sounds like a 50/50 (or 55/45) deal to me.

Another thing to consider is that the risk for the technical founder / programmer is often times higher than yours. There is little that you can do as a marketer until there is a product. He has to put 500-1000 hours to build the first version of the site. You as the "marketer" have the privilege of waiting to see how everything turns out before committing the bulk of your time and energy into actually promoting and marketing the site. If you decide that its not worth your time, then he's out 500-1000 hours of his life that he's not getting back. As a programmer, I've been down this path before, and I've talked to other technical founders who have as well. Its not fun.

Keep it simple. Find someone who is a great programmer and is passionate about your idea, and go in 50/50.

As far as front-end design and graphics design, see if you can just pay them, or do deferred compensation. Those don't have to be ongoing players in the company (initially). If your technical co-founder knows what he's doing, he should be able to maintain and improve on the UI after the initial design is in place.

Also, I would say that if you've spent 6 months writing business plans and doing wireframes, that you're wasting a lot of time. Learn how to run a Lean Startup. Subscribe to some good blogs on the topic. Create a Minimal Viable Product, get it out the door, and prove that you have something worth spending time and money on.

Good luck!

share|improve this answer
I assume you didn't read the complete question, he's putting some of his own money to fund his idea... is not only the idea and the wireframes but also some seed money. – Ricardo Sep 17 '10 at 0:34
@Ricardo - Actually, you're the one that didn't read my response - "... then you are coming in with some money, an idea, and some marketing experience..." – Javid Jamae Sep 19 '10 at 3:59

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.