I started developing a product in 2001. It was a one off web site for a particular client in which I retained all rights / ownership of the software. By early 2009, the code base had been extended to the point that it made sense to "take it to market" so to speak.
I went through a couple sales guys that did absolutely nothing before finding the current guy in mid 2010. Prior to this I had exactly 2 deals worth maybe $60k, that I sold and closed.
The initial deal was that he would deliver $300k in sales, while covering all of the sales and marketing expenses, within 1 year that ended July 1, 2011. If he did that, then he would get 7.5% of the company. He was additionally paid a 50% commission rate. There were more metrics for following years with additional equity distributions, but those aren't important considering he didn't hit his target. Not even close: he made $85k in sales.
I kept with him because I understand that our market is sometimes...slow. Also, we changed our agreement in April so that I split costs with him (trade shows, etc). The new agreement made no mention of an equity distribution.
Now, I'm in a position that I'd like to bring on regular investors. We have prospects in the range of $500k to $1m that should close by the end of this year, but I need more people now.
Of course, in putting this together, my sales guy said that he was under the impression that we were "equal partners". Not just that he was receiving a 50% commission, but that he also had a 50% ownership stake. I'm trying not to just completely explode.
After going through the existing sales, new prospects and the previous agreement I said I'd give him 2% of the company and another 8% if he closed $1m by July next year. This should not only be completely doable, I'd be surprised if we didn't hit $2m.
Which leads me to my question: Am I smoking crack?
More to the point, is giving 2% of a company to a sales guy that has thus far missed targets, but has an honestly great probability of closing good deals later this year a "good deal" or a "slap in the face"?
After a couple hours of talking he wants, at minimum, 30% of ownership, 50% of revenue, and all "expenses" split evenly for the foreseeable future. I can't see how that is a good return.