I'm a programmer and developer - and that is what i'm good at, although i do have some self-claimed ( :) ) Entrepreneur skills and Managerial traits since i'm already running a Web Development Company (still being a student). Recently, a group of 3 people (and it seems they three are good friends with each other) reached to me with an Idea for an upcoming website. The idea was pitched well to me and i do see future for this Idea.
We've did a few meetings and discussed about this project on various aspects: Technical, Revenue Model, Investment, Future Goals etc.
Now, this is what i'm being offered:
- 3 people. An aggressive entrepreneur minded guy - seems clever (He'll head the business part of the company), a slightly technical guy and third, a product designer (He's the one who'll be designing the product - which is a game)
- I'm being offered a 25% (equal) stake in the company (the company is already incorporated with them 3 as the directors). This stake will be non-voting stake. OR
- A 24% stake where i'll have the voting right, but to me 24% seems like non voting again, because i'll have to get two balls into my court to make any decisions in future - which seems really hard. Considering the fact that they three are good friends and i'm quite new to three of them. I dont even know all three of them to be very honest.
- I understand that 24% is a lot that is being offered to me, but wether my stake is voting or non-voting or even if i have this stake will be finalized only when i get the product ready - which seems like 9-10 months worth of Job.
- So, far they are offering me a contract that ensures my stake only when i get the product ready.
- They are ensuring me that the company will be re-incorporated and shares will be diluted when the product is ready for launch.
- They claim to have reached out to many Angel Investors and VC's for investments (the first guy has good contacts and that is where he comes in ) and according to them all the VC's liked their Idea but were not willing to invest since they did'nt had any prototype for the game/website - which sounds fair. But, again i'm not sure if that is true. I'm probably gonna ask for evidence of this before i sign any contracts.
- Since, i'm getting a stake in the company i wont be getting paid for anything - And i'm fine with that - I'll manage my sources of income and time to fit things into my schedule.
- The first guy, since he seems strategic is heading all thee partnership and agreement talks.
- They claimed that this is the best they can offer and have mentioned several (may be 2-3 times) that they have all the resources minus a programmer - Also, it was mentioned in one of the email that worst to worst if they needed to secure a loan for thousands of dollars and pay to have this made and still retain 100% of the company, and declaring bankruptcy would dissolve the company but not effect them personally.
Now, my questions are:
- What should i be deducing out of this partnership?
- What's the best that can happen and whats the worst?
- Does this seem like a good offer at this point and what decisions would you make if you were in my shoes?
Please note that i'm not very well versed with legal issues concerning these type of business models since i'm quite young and just doing school at this point of time. If knowing about the region where i'm in helps you provide me any feedback on this, then i'm from Canada.
UPDATE : They are now offering a clause in the contract where it says that 17% of my stake can be bought back by the company after 5 years (these 5 years start from the date company goes through it's first round of venturing...)
I still retain a 9% stake in the company which will be forever and i can just sit in and rake in cash for the rest of my life.. What would you do if you were me?