Hi guys! Thanks very much for the answers and my apologies for not responding before. I didn’t receive any update email until uberCX’s last reply and didn’t revisit the site frequently.
See below my answers / comments on your posts.
Thanks for your clear calculations, that really helped to understand the subject. Basically your point is that it keeps things easier if you contribute cash proportionally to the equity stakes, because you avoid putting an initial value on the stake, right?
I mean, if the other partner invests more cash (and that changes the equity balance), you are required to put an actual value on the sweat. And if you keep it in proportion, it doesn’t matter if you work 6 months or 9 months on the project (given the other partner also puts in the same proportional time / sweat during those extra 3 months), since it won’t change values between partners. Correct?
As for your point of it only working before anything has been done, how would you say it changes things? How much value in terms of equity would you put on % of the product being finished before actually starting the business?
Our situation is as follows: none of us will work full time on the new business. We will both continue to work, to sustain a basic income. But in different ways and proportions.
The technical co-founder (me) is able to invest around 2,5 days per week actually developing / coding the product, besides working as a freelancer for other companies the rest of the week. Then off course the are some evenings / weekends that will be spent working on the business (other than coding).
The other co-founder will indeed continue his full time job (until the business would take off) and be able invest time on evenings, weekends and ocationally during lunch breaks.
This is indeed and unequal investment in both time and technical know-how. Also in risk taken. And I’m aware of that. But I think it does make some kind of sense.
The point is that, yes, I’m able to build an entire product by myself (off course it will be better with the feedback and input of a partner), but I won’t be able to also “sell” the product and manage everything around it. I think that will be very difficult, and might end up in a big waste of time building a cool product that never sees the light of day. So what I really want is a dedicated partner / co-founder that can take up that role.
Now I realize that the problem is that the selling and managing the business only starts after there is a product. Or at least after there has been done a considerable amount of development work. So then if you come back to the point that equity should represent risk (as also uberCX mentioned), then indeed the majority of the risk will be with the technical co-founder, which would vouch for a far higher percentage of equity.
But if we have established that the role of the other co-founder will only become more important after there is an actual product / prototype, then indeed it doesn’t make sense for him to quit his full time job now and watch me code
So the problem is given the fact that I really want / need a co-founder to take on the business side. But that his input will mostly becomes needed / valuable after I have put in a big time investment to build the product. How can you get to a comfortable agreement, that somehow ensures that the technical co-founder is not being taken advantage of, but also gives the business co-founder a sense of really being involved in the business?
Any ideas or suggestions on this?
Thanks a lot!