Did I Make A Mistake On A 60-40 Deal?

I am a software engineer, blogger, marketer and upcoming entrepreneur. I just programmed an app to help corporate sites in marketing. I did all that alone, launched it and started getting clients. I asked a friend to join me, who is learning more about marketing and has great ideas on how we can build the company and become bigger.

I just gave him 40 percent of the company without him doing anything significant for the start but I see a whole future with him and building the company together. He's supposed to bring in some small amount of money into the company, about 12% more than my own contribution.

We have been friends for a really long time and I felt giving him less equity will not make him feel very much part of the company and wouldn't work hard enough.

I took a leap of faith because I believe in his ideas and I want him to feel he's a huge part of the business so he will work hard for both of us and the company.

I want to know if I should go on with this deal because I am actually not comfortable with it at all ( I want a 30-70 deal) or if I am acting on my emotions because of our friendship or if I am making a mistake giving out that much equity without actually seeing what he can do, considering the fact that I will also help with the marketing and I am the only one who has brought in clients so far.

This is exactly what was running through my head recently with something I am working on. In my case the deal was restructured and restructured until I felt more comfortable. I too had done a lot of work up front but it was also true that on my own it had a higher risk of not getting over the line.

Money is one element as cold hard cash shows a lot, however the fact you are not happy means you must discuss it further. 70/30 isn't too far away. You could take a license fee for your software from a new co that you have more equal a share? This complicates things but by restructuring the deal it may get the best answer (if you think an equity change is a deal breaker)?

Any business partner has to bring something to the table that you can't and not simply add a head count which helps get more done. I would trust your gut, if you don't discuss it you will end up in a great big mess potentially losing your friendship as well as money.

In my case, I may have found partners who can catapult the business forward even though I am taking less equity. Time will tell for me but I feel so much more comfortable now.

It's fair to say that no-one is going to be over the moon about a change of heart that reduces their interest. I would strongly suggest you get a face to face to discuss rather than what sounds like an email at present. Explaining how you feel about the original deal and areas you are concerned about will hopefully allow him to relate and understand your personal feelings. He may present a way forward you haven't considered.

Don't forget you are trying to work together going forward. Think about what 10% means, is there another approach that would mean 40% was acceptable? Contractual conditions on both sides against KPI's etc.

If after you have this conversation he refuses to work at that level then you need to take stock. Do you want to continue working with him, is the relationship salvagable?

I won't comment on any legal standing he may or may not have as it really depends where you are and what agreements are in place if any.

BTW, 5 hours isn't a long time but do pick up the phone!!

Hope this helps and good luck.

Steve.

I think you did a good deal.
Because i believe that IDEAS are the key in today's market, look at all this mega companies & you can find this out, BTW having a less share is much better than a revolutionary-but-dead-idea.

Remember to not to hear the idea only but the thinking procedure which these ideas are made with.

Learn the concepts.

As a matter of prevention of poisonous thoughts on the other side, Always apply ideas with at least a slight change, so you both know that the partner has provided with RAW idea not the game changing ones.

That's when he finds out why his ideas are not complete without you. Also don't forget that maybe some day you can buy his share!

You didn't put all your eggs in one basket, & that's smart.

But there's something you MUST be looking on.

Every now & then, calculate how much value this start up is making for you, & by value i don't mean profits only, i mean all the things that matter to you, like how satisfied are you with your situation? Does it make you feel happier? How much energy & time do you spend on this & how much do you get in return? is it too much energy or time consuming? How did it affect your life? etc.

After asking this kind of question AND considering your share, the you can decide if you're making adequate efforts, or overdosing!

AND after this point you can REALLY see if your partner is doing enough considering his share or not.

Summary : That sound like good deal till now BUT being a good deal from now on depends directly on you.