Equity Offer

[westen30]

Hi, I've been working on developing an app for the founder for about a year off and on. I've been ppaid a small amount of money, a lot less than my usual rates. I've built an MVP and we ahve been seeking funding, that appears to be going well. But, I've finally had my equity offer and it's 1%. Currently that's 1% of nothing, but there are some good vibes about the product and it's possbile the exit could be quite sizable. I'm the only one who's done any real work on the product. I've also been offered a fractional CTO role that would have a salary if we get funding. 1% seems way too low to me, what's the standard, if there is one for a technical co founder?

Thanks

 

[Paul Kelly ICHYB]

How much cash has everyone put in?

How much work has everyone put in?

From your words, it sounds like an insult. Stop working, withdraw the work - the other person appears to have put a value on what they think you are worth and how much they value your work!

 

[fisicx]

Anything less than 49% should be rejected. If you are the one doing all the work and seeking funding what is the founder doing? How many people in the team?

 

[Mark T Jones]

There is no norm or standard - it's really something you should have discussed before you started.

Start by asking yourself what is the resl worth of the hours you've put in to date, and what is the business being valued at?

 

[DontAsk]

I've finally had my equity offer and it's 1%.

That's all it is, an offer. Negotiate. If you can't negotiate, get someone who can do so on your own terms.

Do you retain the rights to the work you have done?

How easy would it be to recreate if you walked away?

 

[westen30]

Thanks for all of the replies. I realise that I should have got this agreed before hand, so I take responsibility for the situation I'm in.

There are quite a few parties involved, but most of them in a "if we get funding they will take on the work of further development" capacity. I've not been involved in the funding at all.

I'm not sure anybody had put any cash in other than the founder who paid me for the initial prototype.

There have been various speculative valuations based on what the platform could do in the future with funding. Anywhere between £10m and £100m in 5 years. I might be being pessimistic, but I would say the lower end was more realistic.

I can just walk away from this, I'm owed some money, but I'm the only one who has access to either the source code or the servers its hosted on. I could switch it all off if I wanted to. I don't want it to come to that and I don't think it will. The founder is a genuine guy and I don't think he has deliberately devalued me.

I don't currently know what percentage the founder is retaining for himself.

I plan to reject that offer in the hopes of negotiating a better split, I just wanted a couple of opinions first. I don't really have anyone to ask irl about this sort of thing.

Thanks again

 

[Mark T Jones]

Thanks for all of the replies. I realise that I should have got this agreed before hand, so I take responsibility for the situation I'm in.

There are quite a few parties involved, but most of them in a "if we get funding they will take on the work of further development" capacity. I've not been involved in the funding at all.

I'm not sure anybody had put any cash in other than the founder who paid me for the initial prototype.

There have been various speculative valuations based on what the platform could do in the future with funding. Anywhere between £10m and £100m in 5 years. I might be being pessimistic, but I would say the lower end was more realistic.

I can just walk away from this, I'm owed some money, but I'm the only one who has access to either the source code or the servers its hosted on. I could switch it all off if I wanted to. I don't want it to come to that and I don't think it will. The founder is a genuine guy and I don't think he has deliberately devalued me.

I don't currently know what percentage the founder is retaining for himself.

I plan to reject that offer in the hopes of negotiating a better split, I just wanted a couple of opinions first. I don't really have anyone to ask irl about this sort of thing.

Thanks again

To be clear, the valuation you need to know is today's value, not a theoretical value in 5 years time- this will be central to the the figure/percentage the VCs are discussing

Understanding the other splits can be important as a benchmark for negotiation.

 

[westen30]

To be clear, the valuation you need to know is today's value, not a theoretical value in 5 years time- this will be central to the the figure/percentage the VCs are discussing

Understanding the other splits can be important as a benchmark for negotiation.

Thanks Mark. I have no idea what the current valuation is, but it can't be much, if anything. All we have is an MVP and an idea for beyond the MVP. The MVP has only been released recently so there is no revenue yet.

 

[Mark T Jones]

Thanks Mark. I have no idea what the current valuation is, but it can't be much, if anything. All we have is an MVP and an idea for beyond the MVP. The MVP has only been released recently so there is no revenue yet.

By funding, I assumed you meant external investment, in which case there will definitely be some form of valuation.

If I'm wrong on the first point, you may well be correct

 

[westen30]

By funding, I assumed you meant external investment, in which case there will definitely be some form of valuation.

If I'm wrong on the first point, you may well be correct

I did mean external investment, but like I say I haven't had much involvement in that part. If there has been a valuation I'm unaware of it.

 

[fisicx]

Thanks Mark. I have no idea what the current valuation is, but it can't be much, if anything. All we have is an MVP and an idea for beyond the MVP. The MVP has only been released recently so there is no revenue yet.

There are hundreds of mvp released every day. 99.9% of them never get past the initial release. It’s not about funding, it’s about how viral and popular the product becomes. Claims of £10m in 5 years are fanciful. If the founder really believes it will succeed get them to pay you for your work. The likelihood is they will lose their shirt.

 

[westen30]

There are hundreds of mvp released every day. 99.9% of them never get past the initial release. It’s not about funding, it’s about how viral and popular the product becomes. Claims of £10m in 5 years are fanciful. If the founder really believes it will succeed get them to pay you for your work. The likelihood is they will lose their shirt.

I absolutely agree, I think I'm the only one involved who can see that this is a long shot. I'm willing to take on the risk though, if there's the possibility of a decent reward. If it fails, then its partly on me because I didn't build a good enough product, but if it succeeds, I think I should get more than 1%.

 

[Gecko001]

I know that The Dragon's Den is far from the real world of business and just a TV show, but is this offer equivalent to a Dragon offering the investment for 99% of the company?

PS. I know that you will get the 1% and not the company/founder, so what will the company/founder get from the investors?

 

[DontAsk]

If it fails, then its partly on me because I didn't build a good enough product,

Conversely:

but if it succeeds, I think I should get more than 1%.

A lot more.

If it does end up worth £10M in 5 years, what's your exit plan?

 

[fisicx]

Consider that an investor may well want 60% or more if they are putting up the cash. Then the founder and other partners will want their cut. There might only be 1% left for the one doing all the work.

Even worse, the investor may want to get their own developers on board.

 

[Daybooks]

“I've also been offered a fractional CTO role…”

Is that fractional as in “less than one” or “small or tiny in amount”?

Amusing.

 

[Mark T Jones]

I absolutely agree, I think I'm the only one involved who can see that this is a long shot. I'm willing to take on the risk though, if there's the possibility of a decent reward. If it fails, then its partly on me because I didn't build a good enough product, but if it succeeds, I think I should get more than 1%.

If it succeeds or fails will be 99% marketing and 1% product.

I appreciate that you're not into the business side of things, but to get a decent outcome here you need to be clear on what outcome you are actually wanting - because I can guarantee that they aren't thinking in terms of the best outcome for you.

And to negotiate, you need at least a bit of insight to the financials.

3 parts to consider:

1. being paid what you are worth on an ongoing basis

2. Being recognised / included

3. The exit

 

[Chris Ashdown]

Ask for a written breakdown of all stakeholders and the company work they do so you know where you stand. you need a plan going forward of the potential company, where the marketing budget is coming from and who own's what, do you have any copyright on any of the work done so far and in the future, do you have a contract. How many hours have you put into the company and what would that relate to at your normal hourly rate

 

[Deleted member 348872]

Ask for a written breakdown of all stakeholders and the company work they do so you know where you stand. you need a plan going forward of the potential company, where the marketing budget is coming from and who own's what, do you have any copyright on any of the work done so far and in the future, do you have a contract. How many hours have you put into the company and what would that relate to at your normal hourly rate

Yes this. Has anything been put in writing? seems you have the reigns owning the code. Any contracts or agreements?
I take it your app solves a problem and not as many do and build before finding if there is a market.