what is a fair percentage ownership for sole developer of tech startup (4th co-founder)?
My husband was brought on as a 4th partner of a startup last year. Unfortunately, he did not take the LLC legal docs to a lawyer to make sure the % he was being offered was fair before signing.
He currently has 8%, however I don't feel this is fair. He has not quit his day job, but has put in countless night and weekend hours for the past year into creating this application. He has put forth his own money to buy necessary hardware/software. He will be the sole person responsible for maintaining/improving the application after it is released.
No one is drawing a salary from the company at this point since there haven't been any sales yet, although the application is near completion and they anticipate selling soon. Everyone is still working their daytime jobs. One partner brought the idea, the second partner handles all legal aspects, including drafting the articles of incorporation, the third handles sales and has already found potential clients.
My questions are:
- Is 8% reasonable?
- If not, what would be more reasonable.
- At this point, can he do anything to change his percentage?
He plans on talking with the other three about this. But I'm afraid since he's already signed on to the 8%, all he can do is just hope they don't laugh in his face.
The business is currently split 36/36/20/8.
The code is available to all the partners, so he has no leverage I can think of.
Co-Founder Technology Development
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Take a look at http://foundrs.com/calculator/index.php and this question http://www.brightjourney.com/q/forming-new-software-startup-allocate-ownership-fairly – Frenchie 12 years ago
2 Answers
He should talk to a lawyer before he raises the issue with the partners, and have the lawyer read and explain the documents he has signed. From what you've described, it doesn't look like he has a basis for additional claims, unless the other partners are willing to give him something.
Fair is a very relative concept. Consider this point of view: he merely wrote some code. Anyone can do it. They came up with the idea. Being myself an engineer, I know how ridiculous this sounds. But I've stopped counting the times "entrepreneurs" with "ideas" approached me with proposals "hey, we need someone to write the code for our idea".
Hopefully your husband learned his lesson.
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I think he has. He'll be contacting a lawyer immediately. In the meantime, I will just hope that the product sells well enough to make him a decent amount of money. Thank you! – Tracy 12 years ago
He should just talk to them about it. I don't think there is much else to it. He has signed up for 8%, that's his legal entitlement.
As for what's fair, you don't mention how long they have worked on this before he started. Maybe they took a lot more risk or financial burden early on to get this going.
I think an even 25% split is usually the fair way to go... unless he comes in late and a lot of work is already done, which may be the case here.
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The idea was well formed, an example back end program had been written, and market interest had been established prior to my husband joining. The back end program was only used as a model for the final product and had to be completely rewritten by my husband. He also designed and wrote the front end program from scratch and developed a new patentable algorithm in the process. My husband has also taken on an equal share of financial risk. Maybe it's just me being biased, but it seems to me he's brought his fair share of effort/capital to the company. – Tracy 12 years ago
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There is still too little information to really get a good gauge of it (and there always would be, it's not a simple matter). I do think joining something that already had a prototype made and market interest tested is a lot less risky than starting from scratch. The original founders deserve extra for that. How much extra, well that's subjective. Do remember that 8% of something big is still quite a lot, it may not be worth getting hung up on the equality and causing rifts. – Joel Friedlaender 12 years ago
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Let's just say that the "prototype" was probably no more than 15% of the final product, nowhere near anything that could have been sold or tested. And that 15% had to be rewritten. That was the main reason they set out to find someone else to develop it. The partner who tested market interest just happens to already work in sales in the target market. So all he did was simply ask his current clients if they would be interested in such and such type of product. Not very risky in my eyes. Either way, you are right, 8% would still be significant if this does well. So we cross our fingers. – Tracy 12 years ago
