The idea is mine. Took Initiative to hire developers and guided them along.approached the potential customers personally before the development phase. A friend wants to be a part of this. What percentage of equity should I give to him from the development phase f the work done is equal after the development is completed?
Prerena, there are usually two ways I've used to value equity. If contributions are purely hours based, then something like "Slicing the Pie" by Mike Moyers would work. However, this doesn't take into account context.
I would use something like foundrs.com since it addresses idea generation, who is in charge, etc... things that Slicing the Pie doesn't address.
Don't give, let them earn. Set specific milestones and measurement points, and as these are met, the partner is rewarded with the agreed-upon stake in the company. Idea generation does not govern ownership, especially if it turns out the idea was flawed, wrong, or needs to be re-worked. Determine what the delta (change) in your business is worth to you with additional help, and let that stake be earned through the work. It's incentive, it doesn't risk a change of heart, and it is connected to performance instead of intention.
I would say it depends on who is the idea guy or the visionary in the partnership. If you are the bearer of the idea/vision, then obviously I am guessing you've probably been day dreaming the idea and you definitely know quite much about the motivation for the idea and how the future will look like for that idea. If that is the case, then you probably want to retain just enough equity above the fold to be able to push through your ideas to properly guide the team towards the achievement of your visions. That means you would want to have the final say on decisions taken by the partnership group. So I would advise that, no matter how much you wish to give out, it should never be enough to place your equity at par with the rest so that you don't get to have the final say on the group's decisions.
Educate yourself on vesting and go that route. One of the biggest mistakes entrepreneurs make is they don't vest shares with founders they bring on. It almost always causes problems down the line.
This is for me easier to answer having had to go though such a situation myself. When time is running fast with ideas and lots of inspiration, it's easy to forget the important details such as equity share and fair rewards. Best to get it clear, fair and transparent from the beginning for when your business goes BANG! You both will change in the mind.
Simply, smart people have created a free online calculator. It's based on who does what and displays the fair share accordingly. Check it out! It helped me to visualise with my partners and it looks a fair result.
See here please http://foundrs.com/
Is there a reason that the text on this screen is printed in light grey instead of readable black?