Ask YC: equity for web design/development

#1

Post by wlai » Wed, May 28, 2008, 6:45 PM UTC

I found a design/development firm that I really like, and they are interested in helping me develop a business idea that I've developed and have spec'ed out. This is a bunch of guys that I'd like to work with long term.

Initially they gave me a bid of roughly $30K of contract work spanning 3 months, from branding study to UX to graphic design to RoR development. But they were so smitten with the business idea that they are proposing that they join as equity partners in lieu for the work, and continuing contribution.

Has anyone been involved in a similar situation? I don't mind sharing the success as Paul talked about, and getting a set of good partners is a bonus. The problem, as always, is valuing what their contribution.

Has anyone gone thru something similar before? Are there any guidance on the range of equity that we should consider?

Re: Ask YC: equity for web design/development

#2

Post by tptacek » Wed, May 28, 2008, 7:33 PM UTC

30k is on the high end for a full-service web design project.

30k is on the very low side if that work also includes software development (database, forms, etc).

Your web design, as long as it falls within a very large window of acceptable quality, is vanishingly unlikely to affect your outcome. But your equity before you have even a demo site is not particularly valuable either. If your tolerance for financial risk is very low --- I know mine would be if I were you --- I might be really happy to peel off some equity to get a committed design partner.

Re: Ask YC: equity for web design/development

#3

Post by aneesh » Wed, May 28, 2008, 7:34 PM UTC

Use convertible debt.

Re: Ask YC: equity for web design/development

#4

Post by erictrigo » Wed, May 28, 2008, 7:38 PM UTC

I would suggest doing a test project first. We often work out situations like this with my company, but it's always best to get an idea for the way that you work together first, before you go for the full on marriage.

Plus, building a small project or prototype should give you a better estimate of costs and value, so you should be more able to understand how much equity its worth.

Re: Ask YC: equity for web design/development

#5

Post by elad » Wed, May 28, 2008, 7:47 PM UTC

Whenever possible, pay cash rather than equity. Cash you can get more of. Equity is limited - there's only 100%. Once you run out, that's done. If it's such a great business idea, than you should all the more want to keep the equity.

Ask yourself this - are you able to find an investor that puts in the 30k you need to hire them for cash, and add more value (advice, connections, more cash, etc.)? How much equity would you give to such an investor? Is it more or less than what they're asking for?

Finally, I'm wary about entering into partnership with a firm that does other things (that aren't investing in start-ups). This isn't like bringing on a full-time partner. It isn't like bringing on a VC/angel investor either. They're likely to have their own agenda, and will only contribute up to a point. They have a business to run that is probably bigger than yours.