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A close friend of mine wants to start an Internet business and he offered me to be his partner. I will be responsible of building the website and deal with technical issues. He will be responsible of operational stuff.

The thing that I could not understand is he wants 55% of the share; my share will be 45%. I don't care if he will earn %55 more than me. I just don't understand why it is so important for him.

What am I sacrificing by letting him having 55% of the shares, other than the profit?

EDIT:

I don't think the idea is original. I just believe my friend's power in operations & finance. The idea will probably evolve to a point (based on customer feedback and our steering decisions), where the original idea gets deprecated. And he wants to work with me because he knows I will produce a solid, scale-able, flexible web application that uses modern technologies. He also knows that development never finishes (actually the workload will most probably gradually increase) so he needs someone who owns the business. So having it done by an employee is not something he is interested in (Then, he will be bound to that (set of) developer(s))

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3 Answers

up vote 6 down vote

What am I sacrificing by letting him having 55% of the shares, other than the profit?

Control. Generally, decisions are made based on the majority vote of the shareholders. If he holds more than 50% of the shares - he decides everything, and there's nothing you can do about it.

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But he states that he came up with the deal and he proposed the idea at the first place. So, he says he deserves to have at least 55% of the shares. Are these enough reasons to have the larger portion of the shares in businesses? – bmm Dec 12 '12 at 23:37
@bmm that's between you and him to decide. There are multiple questions and answers here on how to "fairly" distribute equity, but the bottom line is that it is what you both can agree upon and feel good about. – littleadv Dec 12 '12 at 23:45
up vote 5 down vote

To start with, let me ask you, "Why are you not happy with 45%"?

Merely getting a website done is not building business. If you friend is one who:

  1. Came up with business idea and decided to go in the business.
  2. Going to take care of operations and business side of things.

then he probably deserves his share. He can always get the same technical thing done from any other person, but he came to you and sincerely offered a decent share of his business.

You can further user http://foundrs.com/ and see if the split between you is justified or not.

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Considering that in today's world a great technical lead is so hard to find and they're paid very highly compared to marketing/business people in an already successful venture, I wouldn't say that's right, but maybe that's because I come from the technical side. – Itai Sagi Dec 13 '12 at 7:02
up vote -5 down vote

Operational stuff is mostly bullshit in the first place, unless he knows people with lots of money willing to invest, or have connections for marketing & getting the product out there. I spend about 0.01% of my time doing "operational stuff", and 20,000% of my time programming, designing, brain storming, etc. You deserve at least 75%. Remember, whoever your friend is, when it comes to business, friendship comes last, and you have the upper hand because you have the technical skills. If he brings money to the table, you should still get 60%, even if the idea is his to begin with. For him, no development talent in a web company means he is completely replaceable, and practically useless, unless of course, he is a social media marketing genius... but even then, he has to wait until the product is close to ready to launch before doing any marketing. You will single-handedly determine the success of the company since you are building the product. My advice, dump the guy and do it yourself.

Also, if you do find an investor, they will want around 30%, which means your shares will dilute (31.5%) , along with your friends shares (38.5%), and you both will be out of luck, since both of you will be closer to losing control of the company to your investors.

I went into business myself, learned everything myself, programming, design, marketing, "operational stuff" (taxes), pitching to investors, and got an investor easily after launching a working test of my product, and I am a majority stock holder, even after reserving 15% for employee stock options, and giving stock to each of my very close friends.

My best advice for you is to ask your friend what his daily tasks will be for the first year, and compare them to your daily tasks. I'm sure he will make up a lot of "operational stuff" bullshit excuses that are irrelevant to the success of your company, because that is how most non-technical founders are. They just want control, and they're full of ideas, but not really any help at all. In any case, asking about daily tasks will determine how much you are both worth to the company.

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Do not agree with you here. You are so blunt and think that technical skills are the only thing. If that was the only skill needed to build business, then every coder would have been Bill Gates or Mark Zukerberg. – Pradeep Dec 13 '12 at 3:12
I'm just speaking my mind based on my own personal experience, and the stories my close friends have told me about their experiences... and I believe to be a very experienced professional. maybe I was a little too harsh with my words, but they are still valid. There are quite a few coder CEO multi-millionaires out there, especially within the past 5 years... – Mark Entingh Dec 13 '12 at 7:40
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You couldn't be more wrong. Finding a good technical person is much easier than finding a good business person. And most startups require both business and technical skills to succeed. It could be the same person doing both jobs, but both jobs are equally important. In fact, I would say that in terms of tech startups, the technical challenges are much easier to solve. It's the marketing and getting customers that will kill most startups. Besides you're not even making a minor attempt to answer the OP's question, which is "What disadvantages are there if I have 45% of the share?" – Zuly Gonzalez♦ Dec 13 '12 at 17:42

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