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I am a Product designer with 25 years in the field. I also have an extensive array of skill sets as well as facility. Computerized Milling, Engineering and Development software as well as Rapid Prototyping equipment. I and my company have the ability to go from concept through prototyping and manufacturing. We have many large companies as clients. I am creating a new business model for my already established business.

Several months ago I partnered with a medical professional with a concept for a therapy device. He is clearly very knowledgeable in the field. He had a clearly defined problem with an inadequate solution. This professional had already been to a patent attorney and had filed for a provisional patent before meeting me. The solution that was in the provisional patent was in no way a novel idea and was only a slight variation from what is currently available for this therapy. Bottom line, the patent attorney had taken a lot of money for something that was both a weak patent application as well as the design as presented was not manufacturable.

From the initial meeting, I have stated that I would be willing to partner with him to both develop this idea as well as bring this through manufacturing. First I set up a mutual non disclosure to protect both parties interests and I could talk freely about this product to help steer it in the right direction. I was able to make this product both patentable as well as manufacturable. I was able to reduce the components from 10 to about 3.

I need some input into this partnership.
We both come to the table with equal qualifications yet it has been difficult to determine how to fairly divide this potential product. My potential partner is still trying to see this as an emotional decision. I see this as percentages based on contribution as well as deliverables. I would like to formulate a business model that I can use in other partnerships. My ultimate goal is to have a thriving think tank that births other businesses having many partnerships.

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3 Answers

up vote 1 down vote

Determining equity allocation is unique to every business, so there's no correct answer, unfortunately.

I recommend examining and comparing the experience, contacts, and resources each partner is bringing to the business, as well as their current and future responsibilities.

Also, consider what the business would lose (other than the idea) if each partner quit.

That should give you a better understanding of each partner's value within the business.

I doubt this is the case, but if you want a tool to tell you how to calculate each person's equity, take a look at the Co-Founder Equity Calculator, Founders' Pie Calculator, and others mentioned on this site.

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up vote 0 down vote

Do you need outside investors? Why not develop a cap table including outside investors- if you're doing more of the work, you should get more of the initial split, but if he had the initial idea, he may not go for that.

If you get outside investors, they may demand 1/3 or more, so even if you do 50/50 upfront (between the 2 of you), the end result would be 50/50 of 2/3rds.

Also make sure that you agree that stock that's issued to both of you, if you're doing that, vests over time.

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I am able to provide the development, prototypes to be used as sales samples, production tooling and production parts. This could eliminate the need for outside investors. I was thinking the fair thing to do was to develop a percentage for the initial idea 5-8%. Everything else would be split. – Dug Apr 11 '11 at 3:28
up vote 0 down vote

You say you "Partnered" with someone several months ago. It also sounds like you've done some actual work - although it's not clear what that was.

The real issue here is the Business Form. This is a business - correct? Have you actually formed a business? Is the business a Partnership? (You mention partnerships a number of times). If so, there is no stock involved here. There are several business forms available and you must legally form a business before you can operate one.

If you do form a partnership, there will be a partnership agreement required, and that agreement should lay out who owns how much of the business - and how much of the profits they will receive. This, by the way, does not have to bear any resemblence to the investments.

The non-disclosure has no real relevance to the questions you raise.

As you go forward, forming an actual business should be accomplished before any real work is done.

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