[A55imilate]

I have spent the last year developing some software for an investor. He is now ready to start up the company and wants to take me on as an employee.

I want to ask for some company equity as part of the employment package as I believe the idea to be a good one. There will be 3 people involved initially;

• the investor - who supplies the startup capital
• a project manager - who supplies the ideas and markets the product/s
• and me - who does all the work creating the products

How much equity should I ask for?
Should I be adamant that I own part of the company?

The development of the orginal idea was all done on a handshake of trust that I wouldn't steal the idea, but I am feeling a little left out as they won't even show me the business plan. I have roughed out what I think it needs just for hardware and my start up figures are higher than theirs, so I have a little concern about their plan not being right.

If I don't get my terms, should I create a business plan and get my own investor?

[akula]

Your question relates to shareholder rights. Specifically, you're looking for solutions which distribute/protect rewards, rights and powers

In other words, you want to make sure that you are rewarded fairly and that you enjoy some sort of decision making power/leverage in your company

The solutions to these problems include legal documents like vesting schedules, employment contracts, stock purchase agreements AND certain interpersonal skills.

If you want to retain a role in this company and require answers, you need to a) post your questions on http://www.startupjunkies.org/forums/index.php and b) see a lawyer c) develop your interpersonal skills

Overall, I very much doubt that you have a future working with these guys. You are not assertive enough to have worked out all these issues for your self, and therefore you've naturally lost trust in these people because you have failed to communicate, and protect your rights. It's not their fault. It's your fault.

Any consequent actions involve you screwing your partners (i.e. competing against them, hijacking the source code etc..) and I'm not able to advise you in relation to that.

Cumulatively, on a purely objective basis, and I'm sure you're a nice guy - it's more likely than not that you are not ready to strike out on your own and take leadership of your own startup. If you were, this thread would not have happened. All of the issues you've raised would have been resolved - but they weren't.

I advise you to continue in your role as a technologist, take a salary, continue working with these people and learn as much as you can about sales and management. If you strike out on your own, based on the information provided and inferred - you may end up in a worse place than you are now.

Finally: Your statement "developing some software for an investor" is incorrect. An investor is a person who buys securities from an investee. You have not sold your investor any securities, therefore, you are not an investee but a "partner" or a "contractor".

If you are a "partner", you have claim to a share of the "partnership assets". If you want to leave the startup, you can offer to sell these partnership assets to your partner, or withdraw them from the partnership and leave your partner hanging.

Alternatively, if you're a "contractor", who developed software for your offeror, you can claim a payment. This can fall through if the offeror asserts that they've already provided you some sort of a consideration (i.e. work experience). Furthermore, the offeror can claim that there is no contract for lack of certainty, in which case - you have no recourse, other than equitable remedies.

The point: Have a clear understanding of your legal position because it relates to your rights. Don't misuse words which have special meaning (i.e. "investor").

[akula]

Originally Posted by A55imilate

How much equity should I ask for?
Should I be adamant that I own part of the company?

1. Depends on vesting schedule and BATNA
2. Yes, if you've got skin in the game (i.e. you've put up cash). If not, then the company will not benefit from your ownership, plus, you can't be adamant if you have no BATNA.

You need to have leverage if you want to assert ownership, otherwise, you'll just get stonewalled and kicked off the team.

[sam wrigglesworth]

if there is no contract in place at the moment, hold back the software until they

a) show you the business plan so you know what u have developed is being used for (if it is illegal you will be partly responsable).
b) offer you at least some share holding options in the company
c) give you a contract of employment meaning that they can't just get rid of you in the first day.

this all depends on how much work you have done

good luck pal, and take this only as advice from a third party who knows little about software and more about business strategic development.

best wishes for the future

[A55imilate]

Thank you for your frank answers. I have a lot to think about

[akula]

yeah man,

the point here is for you to have a really strong, comfortable and assertive postion.

with leadership, come responsibilities - and if your passion is to build great software - then you'd be happier to not participate in executive and board management.

in other words - if you want to be an owner, there's gonna be a range of jobs that you have to do (management/directorship) - which you'll neither enjoy, nor be good at (at this time anyway)

if you do, however, want to take full control of a startup - then, incorporate, go do customer surveys, use the results to recruit a team, use the results (prepayments by customers) and the team (sweat equity/cash investment) to manufacture your product, use the results to make some sales, execute a marketing plan to build a competitive advantage, and if need be - try to raise some expantion capital, before looking at M&A options

that's entrepreneurship - it's got little to do with building great software

if you want this role, then go for it

if your passion is making software, then these headaches are not your best alternative

you'll be much happier and wealthier being a programmer rather than a CTO/CEO/director

don't beleive me/want second opinion? go and email the guys on this blogroll: http://southerncrossventures.com/blogroll

[jaybong]

So they hired you do develop something as a sort of freelance contractor. If this is the case I think your morally and probably legally obliged to hand it over. I don't think you can just offer it to the highest bidder because the investor won't agree to your terms.

Regarding them taking you on as an employee you can negotiate any equity amount, but they should be able to retract the employment offer and still be able to get the software they originally hired you for. You are worth approximatly the value it would cost them to hire another person to do your job.

[A55imilate]

I didn't get paid for developing the prototype. I developed it with an understanding I would be involved in the company when it was started up.

So I don't think there is any obligation to hand over the code.

[akula]

NOT LEGAL ADVICE

good point

this often happens in commercial relationships

it works like this:

1) you entered into a contract to develop a web application
2) the consideration given to you (the payment, in lay terms), was a promise of a future offer
3) if they do not make you the offer that they promised, you can keep the code
4) BUT, if you do not like the offer, you may lose your exclusive claim because this contingency was not agreed on

watch out for that

to avoid problems, sort out this issue NOW before they have made you the offer that they promised. this agreement, on what happens if you do not like the offer (i.e. we won't pay you for the next 2 years and you get 1% of the company), will be considered as a collateral contract / or a change in terms, which gets stapled to your original verbal contract

do you understand what I'm saying?

and get these things down on paper, will ya? these people are not friends. they're colleagues, and you're not a kid.

Yes, I do accept payment for these tid bits :-)

NOT LEGAL ADVICE

[Aletheides]

You stated that you were just creating the software - plenty of software developers on elance would love to have your job. You can't negotiate for ownership in a company when you are easily dispensable.

The other guy has the money, and the other guy has the ideas and is doing the selling. They are a little more indispensible, and I am afraid that's just how it works.

[riscphree]

The way I look at it is if there is no signed contract, and you developed the software, its yours.