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I'm a software developer, and I am starting a SaaS company. Even though the project is not too complicated I do need the help of a fellow programmer that is more experience in the web programming (I'm more into the server side), and so I've talked to a friend at work about the idea and he liked it and agree to work with me.

How should we split the money?

I've already started working on the project (but not for too long, about a month, with about 15% completion), however I have already worked out all the idea and details of how it is going to work.

The idea was originally form my father, who would also be our main contact/evangelist of the product. It is a very specific niche its targeting (doctors and med labs), and he knows and is friends with many labs managers, agents, etc, and of course has contact with lots of doctors, who would be the users. He said he can probably arrange the agents to tell about the product to other doctors they visit.

Now my dad is doing this to help me out and isn't technically going to be a founder, so how should I split the money?

Right now my friend is talking about 60-40.. but I'm not too sure about it, but I dont want to be too greedy either.

Would it be better to count my dad's "part" in the business as part of mine?

Dad: 20 Me: 50 Friend:30

Or is it too much? I just want to know what is fair.

Thanks

PS Oh by the way, we are both still working full time, so this would be a moonlight project until/if it started to generate a decent income, but I'm more willing to be the first to quit my job and work 100% if needed. (he has more responsibilities and needs the financial steadiness)

PS2

I'm not familiar at all with business terms, and also I am not from america and English is not my native language, so could you please explain in "plain English" or if using terms (I had to look up for the word equity for the tags :P) explain them? Thanks!

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3 Answers

up vote 4 down vote accepted

I think the 60-40 your friend is talking about sounds fair. The most important thing is making sure the company does well, not how much your share is. 60% of a successful company is much better than 90% of a failed one. If you give the share that your friend has recommended, it is much more likely he will feel a real partner and contribute enough to help you make it a success.

The point that David has made is very valid, your 1 month work that you have already done is going to be inconsequential if the company is successful and has a long duration (and if its not successful, the split won't matter anyway).

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Thanks, yeah I guess its you are right :) I just didnt know for sure because some people (albeit, with no multiple founders company on their belt) were suggesting me to go higher because the idea was mine and stuff like that :P – Francisco Noriega Nov 25 '10 at 22:14
up vote 4 down vote

I would avoid anything but a 50-50 split unless there's a good reason not to. One month's work should be very little if you spend the next 10-20 years working together. And you're a software engineer, you can't estimate :), so you're probably actually 5% done to the first release and there'll be many many more releases after that.

In my case the other guy had spent two years on the project part-time before i started on it. After a year of part-time for both of us i did 10 months full time unpaid before he quit and joined me. We kept the 50-50 throughout. Neither of us wanted to split hairs over details and we're both glad of that 5 year on. If it were a 80/20 discussion, maybe not. But, if you're talking about 60/40, I'd make the investiment in the other guy, you will need him fully interested to succeed.

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well there was the part of me having to give some money to the "3rd" member, my dad but I guess since my friend has agreed to 60/40 that will probably be alright – Francisco Noriega Nov 25 '10 at 22:12
up vote -1 down vote

The right amount is the one you both agree to have.

But if you do not trust the other part or you do not know him very well, NEVER split 50%, because it could lead the business to a dead end. Split 51-49 or even 49-49 and give the other 2% to an outsider (foundation, bank..)

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