I Need Help With Spliting Equity For My New Startup

Hello everyone please I’m in need of your advice on sharing equity.
I’m a developer and I am starting a digital agency with someone who is not a developer but he has connections that could always be bringing contracts for the company.

The problem is how do we divide the equity.

What I have:

  1. As a developer, I would be the one to do every project a clients brings
  2. I would also be training other people interested in learning programming and we could possibly employ the best once.
  3. Any other thing involving IT falls on me only.
  4. I also have some connection that can bring in big clients and contracts for our company.

What He has:

  1. The connection to bring in big clients and contracts for our company. Since he is a tax consultant for the government there is a big possibility of meeting top potential clients.
  2. He handles our finances (not funding the company) as he is an accountant. I mean he manages our money.
  3. He has an office he has already paid for that would now become our company’s office.

Please in a case like this how best should we share the equity? in terms of percentage.

There are somethings worth considering; like what if the contract are comming in from my end only or what if they are comming in from his end only. Do we share the equity the same in both cases.

Please give reasons for your answers if possible as I’m new to this whole equity thing and would really need to learn as much as possible asap. So as to avoid the many mistakes of startups I have read about following my research on this topic.

Thank you all in advance for your genius responses.

I think it should be 50% for each, it doesn’t even matters who has more tasks to do, since you are starting startup together you should share all income, if his role was not so important you would just hire someone and start on your own, Also if one of you is going to invest more money that may change your shares as well, otherwise go for 50/50.

“Connections” are always over-rated.

What I’m hearing so far is you’d be splitting 50% the income with him, and you’re doing 100% all the work.

Over-rated. If you’re good, if you have marketing and doing advertising, you’re going to reel in clients.

ADDENDUM: Bringing in big clients (or any clients for that matter). If a marketing guy over-promises features, underbids cost, on a very short timetable… just so he can “close” the sale and “bring in” the clients, well that’s no good either. You the developer will be the one stressing out, working all the time, and may be even failing to deliver the project with the promised features, meeting the short deadline. Then it becomes your fault why the company didn’t make money – because you didn’t deliver, you went overbudget, you were late in delivering the project.

Accounting and stuff for a small business can be subcontracted to (guess what), other accountants doing this as a side job, and you just pay them a small fee… not 50% of all your income.

For a moment you got me excited there… I thought he’ll be putting up capital for equipment, marketing, advertising, etc.

Why? You can’t work at home starting out?

Sorry, but to be blunt – Do you really need a useless partner like that?

If you’re going to start an agency, it will be better if you find a partner that is a graphics designer. You do the coding, they do the graphics design… and both of you do the rest of the work (marketing, support, etc), or farm it out.

50/50 isn’t a good idea in business because if both of you disagree on something, then it’s a tie. Somebody should always be the leader … 51/49 is the more likely split.

ADDENDUM: If you want to start an agency, do it solo by yourself at first. So you’ll know what kind of partner you need… Maybe you landed a client that wants an App made, that talks to a backend server. So you need another developer that knows IOS or Android app development? Or maybe you need a graphics artist, since the clients you landed want beautiful websites that are eye-catching? Or maybe you don’t even need a partner, you just need to find someone whom you can subcontract on a short basis when you need their expertise.

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Equity is always a touchy subject, especially with such uneven pairings.

There are different things that people can contribute to equity:

  • investment capitol
  • name/brand recognition
  • clients
  • connections
  • equipment
  • ideas
  • sweat/hard work
  • equity in lieu of direct pay
  • the risk of early investment

These (and more) are things to consider.

If you are doing most of the work, then maybe you might consider asking for more general equity, but he gets a larger cut of clients that he brings in. Or maybe you could agree that you will be paid a base salary for the work that you do and that the leftover profit is what the equity will divide up.

It’s always tough having this conversation. If he a friend? Then maybe 50/50 is the way to go. If so, I would have a serious discussion of what is expected of each. And maybe you can agree to keep track of the hours each of you invest. Maybe if he sees that you’re putting in 60 hour weeks and he’s spending 30 minutes on the phone getting clients - maybe he’ll see the imbalance.


How do I contact you for more on this.
my email: lawrenceagles@gmail.com.
Another factor to consider is since this is a web design comapny, I have already been accepted into upwork and I can start bidding for jobs. What would then happen when I get contracts from upwork (as my own marketing)? How do we share the income?

The factors to consider are just too many and he is a very good friend.

If, if he can bring in clients, he is more important financially that what you can get on Upwork, by a very long way. There’s a vast divide between you yourself bidding for [often very] low-paying jobs (which is what Upwork is) vs. what you can get from having someone who can take care of the business side and rack jobs up without you having to find them yourself. Repeat business is what will make you money, and having someone who will take clients out, deal with them one-to-one, sell you to them, that’s a biggie. I don’t know how you test this out - work out some kind of trial run between the two of you? But if he can do what he says, it doesn’t matter if what he does takes 30 minutes if that is the thing that makes money. And you are a cost centre, he is a profit centre. The amount of effort is not the important thing, it is the amount of effort relative to profit. Upwork, for example, has a very low ratio of profit to effort.

How do I contact you for more on this.

I’m at [my user name]@yahoo.com, but I think I’ve helped you to the extent that I can. I’ve given you the sum of my thoughts on this and in order to do more I’d have to get deep into your situation and even then I’d still be guessing.

Another factor to consider is since this is a web design comapny, I have already been accepted into upwork and I can start bidding for jobs. What would then happen when I get contracts from upwork (as my own marketing)? How do we share the income?

Well, that is something you have to decide with him. But make sure you have a very clear understanding of how this will be handled.

Don’t. Mix. Business. And. Friendship. If you’re doing all of the work and he’s getting the half the pay, you’re going to start resenting him. Maybe not right away, but it will happen. If your friend needs help in life, you can find some other way to help him.

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I would be careful that his government job, doesn’t indirectly cause any conflicts. Right now, each of you bring equal amounts to the table. He’s providing accounting and the office. You’re providing the service or goods. You say both of you have connections, so even again. If he doesn’t bring in any business and you do then it might be worth just paying him to keep your books but don’t underestimate what magic an accountant can do for a business. It also might be good to give a sales commission. This would even out the imbalance in sales between the two of you, if there is one. Remember your equity is what’s left after expenses or assets minus liabilities. 50/50 with the proper pay scale should keep your friendship strong.

Portable makes a good point.

Another option would be for it to be YOUR business and you pay him a commission or a percentage on each referral (although as a friend, I refer business to people all the time and expect nothing in return - I send business their way, they send business my way) and pay him for whatever accounting service he provides.

There is the very real danger that you are going to work 60 hour weeks coding and each week he’s going to make a few phone calls, fulfilling his obligation for 50% of the profits.

Having someone working the books and generating leads full time would make sense if it was a business of 10-20 coders. Then I could see that person being a partner. But if it’s just you coding, I don’t see what he’s going to be bringing in to justify half of the business.

If you do decide to split equity for the business, make sure that you are getting paid for your coding time. You keep track of the time you code and get paid for that. He keeps track of the time he generates clients and keeps track of that and you each get paid and agreed upon amount. Then after that, after all other expenses including what you have to spend of software and equipment and advertising and web site, etc, and after saving a little for future of the company, then you divvy up the equity at the end of the year, the surplus. It’s very important that he doesn’t think he’s going to be getting 50% of the gross receipts. This all needs to be very clear to both of you. I don’t know how much business experience you guys have, but you need to be very clear about how this works. I would recommend doing some reading on how small companies are structured.

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