3

I apologize for the length of the post. The last two paragraphs are a more brief summary.

I began working with this company a year ago with the assignment of handling general office tasks. Very quickly I realized that there was many moving parts that very specific to the niche market that we are involved in, and I felt confident that I could develop an application for in house use to assist with daily operations and projections.

A year later, the owners (which I know very personally) and myself are considering moving forward with starting a separate SaaS business targeting the niche market that we operate in, building on top of the application I have already developed. The dilemma I have is rationalizing ownership within this theoretical SaaS company.

There are five owners in the current business I work for, and all 5 want to be owners and investors. Should I be satisfied with equal ownership between each partner, or should I have a larger stake?

At first I felt that I should have a heavier stake because I have put in effort to develop this software to its current state through late and long nights on the side of my current work, but the success of any SaaS product like this will be heavily reliant on their knowledge and experience in this market. The proposed structure would be biweekly meetings between sprints where they come in to provide their insight and opinion. I would also make the point that their connections within this market may prove useful down the road.

I could be satisfied with equal ownership between six individuals, with myself only putting in sweat equity, but I have the means to raise the funds to contribute, in which case my other option is to perhaps request 30% with the other 5 individuals splitting the remainder, and each member contributing the amount that matches their equity.

I am honored that they see enough potential in me to pull money out of their own pockets, and for that reason I am weary of coming across as ungrateful. So feel free to tell me if this all sounds petty or greedy. Thank you for any input you have.

Max Carter
  • 41
  • 2
  • 8
    "Deserve" is a complex word – DarkCygnus Jan 15 '20 at 17:39
  • "Should I be satisfied with equal ownership between each partner, or should I have a larger stake?" - This I think is something only you can answer truly – DarkCygnus Jan 15 '20 at 17:39
  • 2
    The bigger question is what incentive do the owners have to break up their stake to give you equity? Is your contribution unique enough that another developer could not fill in your role if you walked? – Seth R Jan 15 '20 at 17:47
  • @SethR that's a very fair point. – Max Carter Jan 15 '20 at 17:49
  • 1
    @MaxCarter, this really comes down to basic negotiation. You "deserve" as much as the owners are willing to give you for the sake of keeping you around. If they don't really need to keep you around, you don't have much leverage. The worst you can do is quit and force them to find someone else to do the work. How costly will that be to them? – Seth R Jan 15 '20 at 17:56
  • In addition to what @SethR says, beware that the owners may not realize how much they need you. They may catch start up fever, say "We dont need Max!", and proceed to drive their business into the ground. – schil227 Jan 15 '20 at 18:00
  • The "we don't need Max!" threat cuts both ways. Yes, if you're "underpaid" and you walk, that may cost them (in terms of having to pay more to hire someone else.) But if you negotiate too hard and end up overpaid, you may find you're walking around with a target on your back, because replacing you will be seen as a cost savings. – dwizum Jan 15 '20 at 18:06
  • You mind what to ask a tool like http://foundrs.com/ – spickermann Jan 15 '20 at 18:19
  • @spickermann That is a neat tool! Thanks for sharing. – Max Carter Jan 15 '20 at 19:10
  • 1
    @schil227 They can certainly find another developer! I think their thought process is that the current job I work under them requires me to have a fair understanding of the business and the market surrounding it, which would hopefully leave me better equipped to make a useful software. As stated previously though, I just want to be sure to avoid coming across as haughty. Thank you for your input! – Max Carter Jan 15 '20 at 19:16
  • 1
    @dwizum The owners take very good care of me already, and I see how well they take care of each other as partners, so I have no worries of being neglected as a part owner, but I am aware that certain actions can leave a bad taste in the mouth of others. I think you said it best with a "target on my back". Thank you for your input! – Max Carter Jan 15 '20 at 19:18
  • Before you go any further, read this book https://www.amazon.com/Partnership-Charter-Start-Right-Business/dp/0738208981/ Have them read it too. Everyone needs to figure out what they want out of this venture. For some, it may be a quick exit. For others, it may be something else. Usually, everyone has different goals and underlying motivations. It's good to flesh those out before you start the partnership. – Stephan Branczyk Jan 16 '20 at 00:23
  • Also, that startup will be top-heavy initially. That could prove to be a problem. The other problem is the problem of too many contributors. When you have too many contributors, no one wants to take the lead because they feel it should be the work of someone else. It also becomes more the work of a committee than a nimble startup. Ideally, you'd want one or two partners, not five. Do you think one of them could buy the others out at this stage? The problem is that there is already IP that was developed under their partnership. Whoever can bow out now will need to get paid off & sign something. – Stephan Branczyk Jan 16 '20 at 00:42
  • I would like some clarification. You developed an in-house application for a company (company A). Now the owners of company A want to start another company (company B). Company B would be selling the application you developed for company A as a SaaS, correct? If that is the case and depending on jurisdiction, company A might already own the application you developed for it (whether or not they have the source code). In that case, if you push too hard, they might cut you out. – zmike Jan 16 '20 at 05:44
  • @zmike I did not develop the product for them. Company A hired me for a non development job that dealt with office tasks. I took it upon myself to develop the app to solve a problem I saw. The water gets muddy though because as the project turned from what I developed at home into a useful tool, I would actually work on it in my spare time during the day at company A – Max Carter Jan 16 '20 at 07:29
  • IMO, if you don't currently have equity in the company, you should take the equal-share option. From the sounds of it, you're not an indispensable programmer, and the company already owns the application you've built, so you don't really have much leverage here. – Kaz Jan 16 '20 at 13:33
  • @Kaz That's a fair point. The question of equity is in a new company though, not the current one. By that logic, no one has equity in the "new" company. Also, I developed the application separate from the company, developed on my computer, hosted on my servers. I am certainly not indispensable, people rarely are. – Max Carter Jan 16 '20 at 14:34

2 Answers2

7

You ask:

Should I be satisfied with [...]

We can't answer that question. The best advice (that worked for me in life) is to figure out what you want to achieve.

  • Do you want more money? That is not the same as getting equity, but an option
  • Do you want more control? That is going to be challenging with 5 other co-owners
  • Do you want more recognition for your effort? That is something you discuss with your manager
  • Do you want your name on the door / title bump? That is definitely an option
  • Do you want to bet on company doing well and cash fat check in few years? You need to think about risks of that and how much you are willing to invest ($ and hours) and potentially lose without any return (startup fail 80% of the time within year)

I think you should figure our what will make you happy, and discuss that with your current manager. The tricky part will be in two issues:

  1. You seems to be a key asset to the company. Don't come across as trying to force a deal (unless you are ready for that) or threaten the company ("I will quit unless...")
  2. Small companies have potentially issues with egos and "I deserver X" mentality, so there might be some bad blood between parties. I think your question is an example of this ego issue (no offense)

PS: "figuring out what you want" is a hard thing to do. It is not too bad, because you can pick something right now, and change your mind later in life, it works OK if you are honest and communicate clearly.

aaaaa says reinstate Monica
  • 8,942
  • 4
  • 32
  • 44
  • Thank you for your insight! I honestly haven't stopped to really contemplate "what I want to achieve" on a personal level. I have become so caught up thinking about long term goals for the software, so I'm glad you brought it up. I agree that issues with one's ego can easily come up in situations like this, and I take no offense in your second point. I do think that it is a relevant question though, mostly considering one of the main investors was the first to raise the question to me "would you be satisfied with equal ownership?". If it came down to it though, I'd rather take on the risk! – Max Carter Jan 15 '20 at 19:32
  • @MaxCarter added PS. You c an always change your mind – aaaaa says reinstate Monica Jan 15 '20 at 23:59
1

In a sense, you're talking about equity in a similar way to how people talk about other types of compensation (salary, benefits, etc). On the surface, this might make sense - you will be rewarded for your contributions with a share of equity.

However, equity isn't inherently interchangeable with compensation in general. Equity isn't money, and has no stable intrinsic fixed financial value. Equity is just another word for ownership, and ownership cuts both ways: besides potentially having value, ownership can have risk. Ownership means that the buck stops with you: you bear a responsibility for the company. This can play out in many different ways - financial, decision making, legal, and so on.

Of course, if your case is limited in the sense that equity is the only opportunity to have to be compensated, you will just have to negotiate based on equity. But, before you focus too hard on equity, make sure that's what you actually want. In many companies, there are different groups of people who are compensated differently:

  • The people who do the work (make the product or service) are compensated with a salary,
  • while the people who assume the risk (positively and negatively - either they make money when the company does well, or they lose money if it doesn't) are compensated with equity.

By writing the software that this company hopes to base itself on, you're more of a work-doer than a risk-taker. You may find that it's more appropriate for you to be compensated by being paid a salary. Although it seems like equity is where all the glory is (if the company gets bought for a few million), it's also where all the risk is (if the company tanks, you will lose everything).

With all of that in mind, consider your original question:

How much equity do I deserve as the sole developer?

Rather than thinking about it as how much equity you deserve - think about it as:

How much of the company's risk am I willing to accept in lieu of payment for my work?

dwizum
  • 43,585
  • 17
  • 100
  • 155
  • Fair point! Their thought, at the moment, is that their initial investments would cover the business expenses as well my salary. I think it's gracious enough that they would offer "ownership", or "risk" as you have accurately put it, as well as compensation. Part of me would almost rather raise funds for compensation myself so that I do not need to be as reliant on them as partners. I would like to avoid being seen as a burden throughout the development process, which could easily happen given the potential months without revenue as well as the large age gap between us. Thanks for your input! – Max Carter Jan 15 '20 at 19:26