How much equity do I deserve as the sole developer?

Question

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.

Answer 1

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.

Answer 2

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?