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Ask HN: 5% ownership; or hourly-rate. Fair?

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Ask HN: 5% ownership; or hourly-rate. Fair?

#1

Post by anon_4_a_reason »

Our MVP is ready for deploy. The business model has a tech part (SaaS) and an operational part (business service). My partner (and friend) is offering me the following: 1) Past year dev effort to be a cash loan to the company (outside of the share agreement, if any). 2) 5% of the company against a renewable 3 year service-contract agreement; OR; an hourly-rate (no ownership) and a 7% of revenue (upon completion of any work).

I'll be responsible for all things tech (maybe around 15 hrs a week), and he'll be all others (part time too).

The company has a potential $120K in profit, and an exit of maybe $10M.

Appreciate your help.

Is the 5% a fair share? If not, at what percent you think I should negotiate? Should I accept the hourly rate?

Re: Ask HN: 5% ownership; or hourly-rate. Fair?

#5

Post by cperciva »

anon_4_a_reason wrote: post #3
cperciva wrote: post #2

I'm missing something here. Your partner is offering you 5% of the company while he keeps 95%?

Yes - that's the offer. [edit] - he's the original idea owner (which went through 2 rewrites).

Ok... so he's taking 90% of the company just for having the initial idea? Ideas aren't quite worthless, but they're pretty close. Execution matters far more.

What is he contributing aside from the initial idea?

Re: Ask HN: 5% ownership; or hourly-rate. Fair?

#6

Post by anon_4_a_reason »

cperciva wrote: post #5
anon_4_a_reason wrote: post #3

Earlier quoted context omitted.

Yes - that's the offer. [edit] - he's the original idea owner (which went through 2 rewrites).

Ok... so he's taking 90% of the company just for having the initial idea ? Ideas aren't quite worthless, but they're pretty close. Execution matters far more. What is he contributing aside from the initial idea?

He'll be largely responsible for bringing in clients (corporate - good prospects). The business operational side. Marketing & PR (he's good).

Re: Ask HN: 5% ownership; or hourly-rate. Fair?

#7

Post by cperciva »

anon_4_a_reason wrote: post #6
cperciva wrote: post #5

Earlier quoted context omitted.

Ok... so he's taking 90% of the company just for having the initial idea ? Ideas aren't quite worthless, but they're pretty close. Execution matters far more. What is he contributing aside from the initial idea?

He'll be largely responsible for bringing in clients (corporate - good prospects). The business operational side. Marketing & PR (he's good).

Ok. Hire him as your VP Marketing and offer him 5% of the company.

Re: Ask HN: 5% ownership; or hourly-rate. Fair?

#8

Post by brk »

A few questions/thoughts.

1) Cash loan on what terms? Seems like a good opportunity to take it in the form of preferred shares, first $300K of any exist >$1MM for example.

2) Fuck the "OR", always remember any negotiation can be an "AND", cherry pick whatever terms YOU think are right.

3) Ask him to take your "friendship", and past effort, out of the equation. He has a supposedly MVP and he needs to hire the "tech guy" to build and maintain it. What would he offer someone for that role in terms of salary and equity. Don't worry about what the company can afford, pretend his rich uncle is writing the checks for him. Value the position first. What would a "normal" person expect from this role, what kind of talent does he want to attract?

From #3 I think you'll have a better negotiating view. He most likely either places no value on the position (which is a signal to you) or he recognizes the value but the lack of short-term resources to recruit properly. In this latter case, you are foregoing other income opportunities to take a risk with him. That risk needs to have a payoff above and beyond what you could get on the street to make it worth taking on your part.

Reading what you posted, 5% of a $10MM (best case, which is generally unlikely) is $500,000K. As a lump-sum that's not life-changing for most people, spread over 3 years is $166K/year, which is very nice salary (if you get it), but still no where near fuck-you type terms even in the short duration.

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