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I recently joined a small company who has been established for a year and doing outsourcing. It doesn't have tech employees and what they do is to take customer request and find outsourcing companies to finish the product.

Now the founder(let's call him Joe) has an idea for a product and wants to develop it in house. Hence I came on board full-time and am in charge of the implementation. I am also taking on a low salary(a quarter of what I would have earning for a regular job).

There are two other co-founders(total 15% shares) whom are friends of Joe but they merely put little seed money when the company first started. They hold day job and don't directly involved with the company.

Now, I have discussed with Joe about the shares I should be getting. 15% for me was mentioned but nothing finalized yet. Not knowing much about startup shares and all that, my question to you is How much sounds right to you in my case?

the company plan is to get the beta product out in 2 months and starts looking for funding from angels and investors.

thanks in advance for your thoughts.

UPDATE:

A little more info about the product. Joe's idea is not genius and had been tested in other countries. He sees the need in the local market and trying to build something similar with a different focus and approach. Joe did built a beta product via outsourcing but the codebase isn't solid enough to extend further. There are less than 10 paying customers since the beta product out last November. The market isn't huge now but has potential. Now I am tasked to rewrite it with more planned features.

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2 Answers

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Canonically, about 99% of all product startups fail. Why does this product seem like such a solid bet? Has your founder built full GUI mockups and tested them on hundreds of people from the target audience? Has your founder secured orders and down payments for the yet non-existing product?

You're trying to discuss how much ownership you could hope to negotiate for, without bringing data on the merit of the product idea, or the profit and track record of the outsourcing business. Sorry, but that is bordering on being meaningless.

As a potential template for discussion I'll offer up 2 classical suggestions:

  1. 50/50 with Joe. You're taking equal risks, he's only adding the idea, you're building the product. And that side outsourcing business seems in-defensible and of low value. So if ~30% equity has already been transferred, then 35% - 35%.

  2. First, the salary you forego (your fair market value minus what you earn) is given as shares, at the exact same valuation as the two capital investors. Second, you get a solid bonus allotment of shares on top, to make up for the risk you take.

Also see Joel's classical answer, as well as the conversations tagged Equity.

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thanks. I have updated my question with a bit more info. Also, after reading Joel's answer, It seems that the other two "cofounder" isn't really founder as they only put some money(not much) in and not taking as much risk as Joe or me. They should own a small amount of shares. – perlwle Jun 13 '12 at 11:41
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Speaking from bitter experience, you are putting up 75% of your wages each and every month. You are carrying a big risk and without shares, there is nothing stopping the guy just stop paying you after completion and wave bye, bye. A verbal and vague promise of shares is worth the paper it is written on.

You should, therefore, have an expected completion date in mind (say in months). So up front those shares should be alloted to you - 75% of your salary * months / share value as per the paid up equity (presumeably set by the two financial investors). These may be held until completion of you code, but must be assigned first and they should be ordinary shares. This all needs to be in a contract with clear lines of what consitutes completion, timescales, when the shares will be realsed and any penalties.

Failing this, lets say he doesn't want to give up so much equity, then he needs to still hand the shares to you with a clause to allow him to compulsary buy them back on release for a set price (i.e. pay you back your lost wage money plus risk bonus plus interest etc)

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