My friend told me about an idea she had for some healthcare software. I told her it’s a great idea and that she should get it built. She didn’t do anything with it for a month or two so I said I thought it was a great idea and wanted to get involved. I first said that I wanted to project manage for 10% equity. I find myself doing more than simply project managing and I’ve found a CTO who will take equity and cash. I asked if I could be a cofounder and my friend said fine to that. It seems like the idea is hers but that’s where her contribution stops. The rest of the work is mine and the CTOs. I feel like I want more equity to be more invested and maybe I deserve it. How much equity is fair for me to have?
Everyone should vest. Split three ways and if she does not work and leaves in less than a year she gets nothing.
Let her have 100% of the idea and you take 100% of the startup. It’s a win win.
As others have said, the idea isn’t worth anything. There is so much that needs to happen for the business to actually be something.
Equal
Here is a resource that was recommended to me to address concerns about splitting equity. Perhaps you and your friend could benefit from checking it out as well
Do this. Start with a fair dynamic equity model, and it will quickly become clear that unless she contributes her share in the company will continually decrease.
The idea means nothing without the execution. Generally, cofounder split is based on risk taken during the forming of the enterprise and on responsibility. It sounds like your friend wants to do nothing.
I can’t stress this enough: this is not a good look. You barely just started this business relationship and it already looks like your friend will be dead weight forever. It also sounds like she may not even want to build this at all, given she isn’t doing anything.
I see 2 scenarios: 1) if your friend had the idea, she gets a minority cofounder stake but if you’re going to execute, you split the remainder with the CTO (and get a CTO who will also be cofounder) or my favorite: 2) you run for your life and get out of this situation because this is bound for disaster.
Thanks for your reply. Why is it bound for disaster? She will not be able to execute without me, you are right. She has terrible health issues. I don’t mind everything the CTO won’t do but I just want to be fairly compensated for it.
As mentioned above you have nothing unless you have execution. You should be no less than 49% equity holder unless she’s going to be funding the entire project herself and paying you for all your time and effort. Who is going to be leading the sales effort?
You should ask for at least enough equity that you feel compensates you adequately for the time you are putting into the project, such that you don’t either move on to something else because you’re getting underpaid or feel resentful down the line because you were underpaid relative to your time investment.
One of the things that lawyers and others in professional services have to learn quickly is that you’re not betraying a personal relationship by asking to be adequately compensated when it leads to work for you. It’s the same here - you’re selling your services to her, she’s buying your time and taking you away from other lucrative opportunities, and you should ask for the market rate for your services. You aren’t doing her a favor here - she’s buying you at your market rate, as converted into the estimated value of the shares.