Starting my own business - how much % to give friend
Hi, I'm in the process of starting up my own business.
To give a bit of background, I came up with a business idea which I decided to speak to a friend who has experience in this sector/area to hear his thoughts. He really liked the idea and said he would love to work on this with me which I thought would be a great idea. Everything has gone well, I don't regret working with him on this, he understands the sector well so definitely adds value and I'm glad he joined me. However, he's been talking about 50/50 ownership and has been writing in our contracts that he is co-founder with 50% ownership.
I never said anything at the time as I didn't really expect that. I was just like "ok cool" when he said this but I really don't feel comfortable with this considering it was my business idea and I've put in most of the work but I don't know how to tell him without causing conflict.
I just don't think it's fair for him to get 50%. Any advice on how to approach this without causing conflict and risk him quitting? He always refers us to partners so in his mind we're co-founders but in my mind, it is my business that I've brought him into.
Thanks.
This is tough. I don't think anyone really knows.
Tell him 80 / 20
Actually go for 90 / 10 at first for idea generation. Then negotiate to 15 or 20. Or stick to 10 if you can.
Idea is worth noting, can you achieve the goal without him? Does he bring 50% of actual execution and knowledge to the table?
You are all thinking about this in the wrong way. You should shift your thinking to the long-run as most of the work is ahead of you and should use equity allocation as a motivator. The work you have done so far is nothing compared to what is ahead of you and you want your partner to see this as a joint venture and work equally as hard as you. Given his expertise, you could argue that he will be providing way more value than you will - idea generation is nothing, execution is everything. It is much better to have 50% of a $1 billion company than it is to have 80% of a $100,000 company because progress is slow and co-founders are not motivated to grow the business. Hope this helps.
Yeah good points.
.
There's no point in arguing over equity at this stage, don't let the company fail to launch because of something like this. Typically at this stage you should probably give him 50% or at least something substantial since he obviously in some way feels entitled to it. Out of curiosity did he join when you had the idea or after you already had something to show for it?
I take it you haven't incorporated the company yet or ownership would be confirmed in the company formation docs?
With this limited information it sounds like he should be entitled to 50%. I doubt you brought this idea to someone that coincidentally has experience in the sector without wanting them to jump on board - maybe you did not bring it up, but you were probably happy they did first. It sounds like you realized you probably could not do it alone and needed someone like your friend to jump on board.
Besides the business idea, we haven't heard what else you are bringing to the table.
This is easy. Sit down and have an honest conversation with him, and yourself for that matter. Take a clear-eyed look at what each of you is bringing to the table, and what that's worth. You had an idea. Can you execute on it? Are you providing capital to get it off the ground? If not, who is?
If all you have is an idea, and your friend is going to be the person who makes it a reality, then of course he deserves 50% of the business (if not more, honestly). If you're going to quit your current job and work on this full time while he consults for a bit, then maybe you deserve more for the risk you're taking. From what you're saying, it sounds like he very much has been a co-founder and that your business would remain in your head without his help. Is his skill set replaceable? What would you have to pay someone for what he's bringing to the table?
And finally, what is his friendship worth to you? If it turns out there is a line of equally competent people willing to come on board for 10% and he's holding out for an even split, maybe he isn't all that much of a friend anyway.
Is he going to be actively involved in the day-to-day operations? 50% is way too much for a board member / strategic advisor type, but very much merited for an experienced cofounder.
As the poster said above, ideas are easy to come by but execution is everything. There's a reason Zuck's worth $100bn and the Winklevii got $65M in the settlement. If he's bringing industry experience, relationships, and operational commitment, then you'd be remiss to reduce his incentives here, but if he's going to be a sounding board for ideas while you do the grunt work, I'd probably keep it to 10-15% (obviously if the answer is somewhere in the middle then the equity would be too)
Omnis sint aut et molestias quasi doloribus amet. Ut aliquam corrupti est velit sit. Ipsam reiciendis optio velit. Maiores enim sint quae sunt nihil rem.
Alias odio voluptatem quo non doloremque incidunt animi. Expedita ex maiores explicabo et. Asperiores ullam fugiat natus qui est rerum qui.
Quae dolore id voluptas corporis ut. Accusamus natus necessitatibus nisi omnis delectus. Delectus est libero ratione ipsa hic.
Voluptate ea quisquam sit natus ut aliquid cum. Illo sed ex ducimus corporis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...