Ask HN: How Much Equity For An Idea?

He wants me to run with the idea but he wants (and deserves) something for the idea. Has anyone been in this situation before and how did you solve it: a small amount of equity? cash outright? He mentioned 5% equity. That sounds reasonable but I thought I'd ask here.

With that said, you are considering investing in the idea, so that means you think there is some value in it, at least to you.

Offer/give what you think is fair. If it makes you feel more comfortable, maybe do 5% up to a preset maximum?

My test for deciding if you want to bring an 'idea man' along is this:

Imagine that you and your friend -- the idea man -- work together at a nice day job. You both make a good salary. One day, your boss tells you that he wants to fire your friend (who wouldn't take a pay cut) unless you're willing to take a pay cut. Your have two choices: (1) take the pay cut, or (2) your friend gets fired. How big does that pay cut have to be before you let your friend get fired?

For me, it's less than $1,000/yr. I love my friends dearly, but I'm not going to pay a buddy just to hang out at work and keep me entertained.

Unless your friend's idea is going to make you wealthy enough that you no longer have to work, then you probably don't want to give him 5% of your company just to be your friend.

The original idea will inevitably morph into a completely different thing.

Edit:

If you must give something ( because it strikes your fancy) , then ensure they are non-voting shares and that he cannot prevent any ( and I mean any) amendments to the by-laws, shareholders agreement or the articles of incorporation. ( to the full extent of your laws)