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Should I sign over my site for a small stake in a company that does not yet exist?

4 points by kjf ↗ HN
Dear HN,

A couple of years ago I decided to teach myself some web development. I had a novel little idea for a website which as far as I know hadn't been done before and would be simple enough to implement, so I implemented it and learned some web development.

The website has been running for 2 years, during which time it has been ticking along nicely with small number of visitors. It doesn't make any money but thats OK, it wasn't the intent.

I have recently been contacted by a couple of guys who are starting a company with a very similar idea to mine, the difference being they seem pretty sure they have a way of monetizing it. I've met with them a couple of times and it does sound like they could pull it off. They have a lot of industry experience and contacts in the right places.

They are purely business people, not technical in any way so they would like to incorporate my site into their plan. For me agreeing to sign over the site to their new company I would receive a 10% stake.

So, the question is, what to do? I'm pretty sure I won't be able to monetize it by myself in the way they could. Having the right contacts is sometimes all you need to get ahead. At the same time 10% seems a very low stake considering I have a working site and at this very moment all they have is an idea.

9 comments

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_pius
Tell them that you've actually got your own company and you'll be happy to hire them as a marketing team and give them each performance-based compensation based on the revenue they bring in for you.

Or, to be less inflammatory, tell them you want in. You're the one bringing IP and a customer base to the table, so you'd like to have an equity stake at least equivalent to theirs. Don't let anyone who may or may not have any ability to implement jerk you around.

fatdog789
Agreed. Business folk tend to think that the technical side of their plans is the easy part, when it's usually the other way around: business plans are a dime a dozen, but a flawed technical execution will kill any business plan (see Cuil, for example).

Plus, from the business/legal perspective: you have all the valuable assets. They have...nothing. You're making the only capital contribution to this company...that means, you own 100% of the company unless they put their own cash in (services rendered don't count as capital contributions).

noodle
question - are we talking about you giving them the keys to your site and then walking away, not having to help, develop, or deal with the site, for 10%?
kjf
No, not quite. They would require me to make some changes to the existing site and more than likely some further development. The equity would increase by a small amount with any extra work.
aristus
You are coming in pre-funding, contributing 100% of the technology, branding, and customer base. They think that's worth only 10%? That's kind of insulting. Flip it around and ask if they would like to be your sales department for 10% each and see what they say.
bjnortier
Interesting. If I were in your position I would consider - How much effort I've put into the project (in income opportunity cost) - The capital they are bringing to the new company. Or, how much capital they are the capable of bringing in with their contacts.

I would base determining whether 10% amounts to a fair price on that.

If the site is simple enough to implement, I would also consider how much it would cost them to get someone else to do it. I.e. if I demand 50%, they might say "Thanks, but not thanks. we'll just pay someone else to write this for us.".

10% of something is better than 100% of nothing, but you don't want to be taken advantage of...

kjf
I certainly agree that 10% of something is better than nothing but the problem is at the moment I'm getting 10% of nothing as they only have an idea.

They could pay someone to build a site but then mine would still be around which would be competition for them.

bjnortier
Well, if they only have an idea, and they're not bringing any money to the table, then I would refer to the following from the 37 Signals book "Getting Real" (free to read online)

http://gettingreal.37signals.com/ch06_Done.php

Be An Executioner

It's so funny when I hear people being so protective of ideas. (People who want me to sign an nda to tell me the simplest idea.)

To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.

Explanation:

    * Awful idea = -1
    * Weak idea = 1
    * So-so idea = 5
    * Good idea = 10
    * Great idea = 15
    * Brilliant idea = 20

    * No execution = $1
    * Weak execution = $1000
    * So-so execution = $10,000
    * Good execution = $100,000
    * Great execution = $1,000,000
    * Brilliant execution = $10,000,000
To make a business, you need to multiply the two.

The most brilliant idea, with no execution, is worth $20. The most brilliant idea takes great execution to be worth $20,000,000.

That's why I don't want to hear people's ideas. I'm not interested until I see their execution. —Derek Sivers, president and programmer, CD Baby and HostBaby

fatdog789
Consider this: it's not just the cost of making the site these guys would have to swallow if they go with another developer, it's the cost of developing the customer base. This means that there will be a several month period during which they're not able to monetize.

Demand 100%. They haven't offered you anything. Monetization? Micro-transactions, or subscriptions (i.e., ad-free access). Hm...For that, I think I deserve 90% of your company now. :)