Am I getting a good deal in this partnership?

[squawkward]

Hello All,

I'm a web designer/developer, and have been helping a colleague with his new startup business. It will be a simple website builder, targeted to a few niche industries, and will be a monthly subscription service. My colleague can be considered the 'founder' of the service, and I at first jumped on and started helping as a designer, but lately have been making more strategy and marketing decisions.

We're at the point where it's time to write contracts and he has alluded to giving me 20% of sales of this product, plus also giving me 5% equity in the company, which can grow the longer I stay with him/the company. Does this sound like a good deal? I'm not sinking too much of my time into it yet, but if the product launches and does well, it will become more of a full time commitment. Some of you seem to have some web and similar industry experience, so I'm wondering if this sends up any red flags in your opinion, or of there are some questions I need to be asking?

[DeniseTaylor]

Hi There

It's really hard to say, without knowing the person you're referring to. There are many Internet startups that go nowhere, and others that result in riches. However, the latter are far fewer than the former. ;-)

I would make sure your commitments were very well laid out so you don't encounter gotchas later. And possibly even an escape clause in case it's not what you thought.

On the positive side, you could be destined for some profitable things. In which case I said, congratulations! :-)

Good luck to you and Happy Holidays!

[marrick]

Well, for me it sounds a good deal since you are not spending money as investments. There are some things that you need to be careful of. One of them is the effort that you are going to contribute. Spending no money in a business is good, but if it requires most of your time, then you should think of it carefully. Another thing is the business stability. Start up businesses are very vulnerable and can collapse anytime if doesn't manage properly. Does your partner posses the ability to grow the business?

[jimr451]

I'd second the questions from marrick. Are you confident that your "partner" is equipped to grow the company? Is there a management "team", or advisors who can shepherd the company through the turmoil of the startup?

Also, I'm always leary about startups that ask you to work for "no pay" - to me that means the startup is underfunded.

Even the founders of google and facebook had to eat, and pay bills. So as they labored building their companies, they still drew some salary to pay the bills and not have to work a side job. Equity can be a big part of the equation, but at least there should be cash to properly grow the company. If the founder is not actively seeking investors, you have to ask how the company will have the cash to keep growing.

I don't mean to sound like a wet blanket, but as was mentioned, the vast majority of startups fail, even when funded with $millions to get up and running. So just be careful that you have some hope of recouping your time - and good luck!

-Jim

[ARMGenius]

Hi Squakward!

If you're the only one doing the coding/designing of the website, I think it is fair you receive at least a 50% interest in that particular company. Especially if your potential business partner has not injected any capital into the project. Another thing I have to wonder is which of you will be responsible for generating the premium content you look to sell? Is your partner reliable? Do you foresee any problems with content creation? This will ultimately be the product your website is selling.

On another note, I disagree with the previous poster's view on startup capital and taking a wage. Let's be honest here, most companies don't start with a dime to their name! Founders are forced to work months, possibly even years before enough revenue is generated to pay out a wage. It is the risk you take with starting a business. Plus, I can't imagine too many investors pursuing a concept. They are going to want to see a MVP and then work to improve that and further monetize it.

I guess my point is, don't expect your partner to give you equity and pay you a wage. You're taking a risk, do you feel comfortable with it?