Giving away equity is not ideal, but sometimes that's all you have. I would much rather give away equity for productive marketing and sales than I would for just about anything else.
There is an exactly
right way to do this. And there are lots of other ways that involve lots of guessing and opinions and predictions about the future.
To do this properly, determine a fair market rate for the lead fee or traffic generation. This should be easy. It is similar to what the company would charge other companies.
When they give you the leads they aren't getting paid. They may never get paid because your company is a startup and, therefore, high risk. This means they are, in effect, betting the fair market value of the leads on the future outcome of the company.
You, too, are betting the fair market value of your services on the future outcome of the company. In fact, everyone who contributes to your company is betting their contributions on the future success of the company.
The fair market value of these contributions is easily quantifiable and it accumulates over time. Therefore, any set amount of equity you give partners or even yourself is going to be wrong because you can't possibly predict all the various contributions your company is going to need. Most people try to do this, but they are always, always wrong.
You need a dynamic model for your equity split that allocates equity based on the relative risk taken by you and the other participants.
At any given time:
- Your share = the fair market value of your contribution? the total fair market value of all the contributions made by everyone
- Their share = the fair market value of their contribution? the total fair market value of all the contributions made by everyone
This dynamic equity model will guarantee that each person who contributes to your startup gets exactly the equity they deserve.
This is the only way to make the split fair. Every other method on the planet will cause future problem that will come back to haunt you.
I've written a book on exactly how this works, it's called Slicing Pie and you may have a copy if you contact me through SlicingPie.com
PS: Think about how this might work on a smaller scale. If two people each bet a dollar on the same hand of Blackjack they are each risking the same amount. If they win, they should each get half the winnings.
But what if they get two aces instead and have to split them and double down? The first guy is broke so the other guy puts in two more dollars. Now if they will the first guy only deserves 25% because he bet $1 and the other guy bet $3.
It would have been silly to try to guess, in advance, how much of the winnings each person gets. Only when you look at the bets are things clear.
Only a jerk would argue that the guy who bet $1 deserves the same amount as the guy who bet $3.
It's the same in startups. Look at the bets, the actual fair market value of the bets. The bets will give you the answer.