I was approached by a friend with a business idea that i really like and would like to invest in (i would invest with another person). The question is, what is a fair equity share to give this person who brought the idea to my attention, and who will also work the business (sweat equity). My other partner and i are also going to work in the business, but not full-time.
One of the solutions we came up with, is to be equal partners (33.3% each), but the partner who didn't have any cash would pay the other two partners back over the course of a year from his share of the business profits (eg: if we invest 60k total, the person would pay us back 20k).
Is this a fair agreement? What other agreements have people seen? One reason against it is that in a year the business could be worth way more than his initial investment. But i want to do the right thing and be fair while also being business savvy. Any help would be greatly appreciated.