I’m a freelance web developer and I have been offered equity in a startup in exchange of the build of the MVP and long term support and development.
My initial quote for the MVP was at around $15000.
It is about an e-commerce platform, more complex than a traditional store though.
I have worked with the 2 founders before and we have a great work relationship, that’s why they offered 8% of the company equity.
The project is planned out and designed.
If I join the project, I would not get a salary and will be able to work part time on it so I can keep doing some freelancing work on the side to pay my bills.
Do you think 8% is reasonable?
Knowing that the business relies on the website for sure, but there are a lot of other processes required for the success of the business.
As others have pointed out, this is a hard question to answer in isolation based on the info you've given.
But here are a couple of different ways to look at it.
1. From your point of view: How much time will this take? Do you have enough work at the moment? If you are gonna be Idle for a month or have to do a lot of hustling to get work and if this is gonna take a only a couple of weeks, how does the deal look? Is there something new you'll learn doing this? If you factor that in as free training, how does the deal look?
2. From their point of view: Obviously they are entering a technology play with an eCommerce platform. Surely, they need ongoing technical savvy after the MVP if they get going. Why aren't they asking you to join the company?
If I were in your shoes, these are the questions I'd be asking.
I keep it simple
I am a maker. I will bring a product to the table.
You are a marketer. You will sell the product.
I will make, enhance, scale and maintain a product and infrastructure.
You will create, test and enhance an entire sales funnel stack for a product.
All the rest is fluff.
I don't care much about the idea itself. It will probably change.
I don't care about how much research was put into the original idea before I got here.
The last thing you want to partner with is someone's idea.
Instead you want to partner with the skillset that potential partner brings to the table.
You have value if you can bring a product to the table.
Don't sell yourself short.
If the potential partner can make sales as good as you can make products then,
Equal Equity Split.
Since it's an MVP, there isn't a great way to value the company. with 15k=8%, they are valuing at 187K. If the company was to be successful, it's easy to see the value being much more.
Not knowing the details of the company, I think the possibilities are either the company doesn't fly or only makes moderate gains, in which case you loose 15K or it becomes successful in which case 8% will be significant equity.
So you need to look at it from that lens and see what information can you gather about the likelihood of the company being successful. Look at the founders' background, the market, their understanding of the market/do they understand the customer needs, market forces, economics etc.
In my opinion, you should also consider the negative scenario and see how you would feel, because no matter what, it's a risk.
hope this helps
Matt Mansour has given you a great answer there. I would think about it like that - don't undersell yourself - 8% looks way too small at this stage if you are in it for the long run especially if you factor in dilution.
First, the most likely outcome is you get nothing for all your hard work - even if the company is successful.
Second, if they can not raise money now, they will not be able to raise money in the future. Without the ability to raise money, they will certainly fail.
Third, a percentage is meaningless because there will be rounds that dilute your percentage. They can even issue stock to themself after they issue yours, instantly reducing your percentage.
You want to hire a lawyer (get them to pay for it). The lawyer will first tell you not to do it, then will generate a agreement for deferred compensation with a option to buy a fixed number of shares at lowest price offered to anyone else. If he would like to look at our agreement, just send me an email.
Do not allow them access to the source code until you get your deferred comp.
To be honest with you I think 8% is a lot of equity for doing a part-time job as a web developer. No offense you're probably a great web developer. Most startups don't have a lot of money in equity is a good way to get you involved. I would be more comfortable with the 8% if you had something else to contribute rather than just web design. Maybe as a Socal Media Manager or other marketing. Even if it is a web company there is a lot more than just web design to any company. Good luck
8% of nothing is still nothing. So you need to figure out how much is 100%. If they don't have anything besides the vague idea, some sketches, and a few "customers" who said "yeah, great idea!" then your MVP is the only real value their company has. You should have more like 92% rather than 8%.
Put it this way: you develop an MVP, spend $15K worth of your time and then founders say "You know what, it doesn't look like a viable idea, after all, let's go home". You are out of $15K and they?
So, answering your question: you should be a cofounder with an equal share. And here, equal not always mean fair, maybe your effort warrants even more.
Before I answer this question, you need to think about the fact that without the website there is no business to market or sell. So for knowing worth, you are instantly the most valuable asset to the startup.
I agree with other answers here that startups rarely turn out to be what is originally planned, at some point along the way slight or in some cases major pivots occur for sake of staying alive and finding a model/product fit that can scale and only the absolute best founders have the grit to persist through this period and come out the other side. So taking such a small amount of equity is quite risk to begin with.
On top of this, knowing the generalised success rate of startups, offering a mere 8% (which will be diluted if investor capital is raised) to basically build the vehicle that will help them build a business is in my view quite greedy and unfair . If you are needed to build the technology because the other two founders cannot code or build a basic MVP themselves then it should be a discussion based around you joining for the long run and becoming a co-founding partner at what I would expect an equal share of 30/30/30 or something close to this. Also, what does 'long term support and development' mean? This could entail a lot more work than you or the 2 founders expect, and when this situation occurs it is usually the beginning of problems.
If you were to take the 8% there is a lot of questions you need answered around vesting, expected results/goals, dilution, etc.
Dont sell yourself short, get paid or take a co-founding level stake.
I have some experience in this as I have offered similar deals to Developers and a lot of back and forth to see their perspective with mine. I would be cautious of these people. Giving up 8% for something that would otherwise cost only $15K doesn’t make any sense. You have to look at it from the perspective of what it would cost them to save 8% equity. If they can’t come up with $15K to save such a large chunk right off the bat, then I question everything about them and what they are actually trying to pull. And that is your price, depending on your region, they could potentially get the same site for $10K or less overseas. It might not be nefarious; maybe they really want you on board and are willing to pay because you are the bee’s knees developer. Or it could be that they know their company won’t be worth anything in the end once they are done. Perhaps they know something isn’t on the up-and-up and are doing this for the commerce sales margins or some other way of profiting before they get shut down or planned abandonment. Or the real money they are after is in using the platform for other gain not considered part of the platform company. A quick example is I recently had software built for my industry. It’s highly valuable to other people in my industry so I am looking for someone to partner with to bring it to market. But I could care less about a business that sells this software and would just as well give it away free to people in my industry to use. Similar to your situation, though it’s already developed, if I were to partner with someone to bring it to market, I would gladly give them a significant equity stake. That’s because what I am interested in is the data this software is actually designed to collect that I want to use in my original business not related to the software business, that is where the real value is to me. Just keep in mind that not everyone’s interests are the same even within the same business. Be careful. But then again, personally the wholesale labor equivalent of $15K is absolutely something I would risk in a deal for 8% assuming I know the actual whole story.