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How should I negotiate for equity in a company?

3 points by reconbot ↗ HN
I've been recruited to be the sole developer on a service based start up (phone based tech support). I'd be making the back end of their website and integrating it with a ticket system. This will probably end up with me having a heavy hand in work flow and other aspects of how the company runs. We've discussed hiring me at my hourly rate, but they've mentioned they don't have an income yet, and asked if I can take it easy on my estimates. I'm not worried about getting paid down the line, but I would like to negotiate for a piece of the company as I think I have more to offer than just being a programmer for hire.

As I see it. I've got a couple of bargaining chips. 1) I've got a good amount of acknowledged experience and knowledge in both fields (theirs and mine). 2) They would like more work out of me then they have ability to pay for. 3) I've got a heck of a lot more knowledge in leveraging mediums such as twitter, and blogs. 4) I would love to spend more time on the company then just coding a back end.

I'm also not sure exactly what I'm asking for and what's reasonable to ask for. I'd rather make money monthly from the business then when they might sell it down the line, but I don't even know if that's a smart. I could alternatively build the system and lease it to them, but then they have less incentive to work with me and I wouldn't have nearly as much of a stake.

I've never worked with a company where this seemed like a viable option, so I've never had a chance to negotiate. Any tips on how I should go about this and what I might ask for?

7 comments

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icey
It sounds like you've thought this through pretty well. I would just have a frank discussion with them about it; making sure to mention the bargaining chips you've mentioned here.

If I ran a company and the tech guy thought it was a good enough idea that he wanted some equity in exchange for a somewhat smaller salary, I'd probably be pretty happy that I had someone working with me who saw the value in what we were doing.

reconbot
I guess what I'm looking for is some advice on how to partner with them for money. I'm not sure what's standard and what's rude. Or how a % of the company would get paid out. These aren't questions I want to ask them.
icey
Unfortunately I can't give you any advice regarding specific percentages. But I would be very up front with them regarding wanting to take a bigger part of the action.

Something along the lines of "Hey, I think this is a really amazing service and I believe it's going to be very successful. I'd really like to talk to you about making this a partnership instead of just being an employee. Here are the ways I think I can really contribute to the success of this thing..."

reconbot
I was thinking about monthly share of profits vs annual bonus vs non voting shares for a cut of the sale of the company. I'm not sure what the long term benefits are in the different cases.
mehtaabhi
Dude, i have burnt my hands in such deals at least couple of times as only 4% start ups make money and only 10% recover money. Not to dampen the spirits, I will tell you one mantra which i follow. Pitch for revenue sharing and stock options both.

Stock options have to bought first and when the company makes money(VC comes in) you can dilute them. But if you get revenue sharing you will be earning something even if company is not a huge success.

reconbot
Am I off basing asking for a fixed cut of every support incident? That's something I'd think of if I was providing their software as a service.
mistermann
A somewhet similar question asked on SO a while back: http://stackoverflow.com/questions/1064513/how-to-fairly-dec...

You don't mention much about the other people involved....they seem to have no, or very little, money. Do they have good contacts in relevant industries? I'm suspicious how good they may be, if these guys have no money (they generally seem to go hand in hand). If all they have is an idea, they don't really have much.

My gut feeling is you are preparing for an utter disappointment (which is not so bad really, you have to go through a few of them!)

Assuming my take on your situation is approximately correct...I would develop it for free, retain all rights, and license it to them. And don't be too overly descriptive of how all the magic inside works, lets they are smart enough to steal your idea and redevelop elsewhere.