how to divide ownership shares in a side-project startup?

September 5, 2007 6:38 PM

I have an idea for a web project. It may have some commercial potential eventually but will basically be a night project for me and the other folks involved. Think of how MetaFilter got its start... hand-rolled / bootstrapped, whatever. My question is: how do you agree on who gets what share of any proceeds down the road? In particular, the design work will be heavy up front but tapering off after launch. Is it insulting to offer a designer a 5% share for a few days work? Does everyone brought in need to be made an equal partner? I'm sure the answer to that is no, but I'm not sure what the alternatives are. Paying people cash for work is not an option. There is no cash, and everyone involved is willing to invest some time and wait for results. The only thing is that some of us will be investing more time than others... so what to do?
posted by scarabic to Work & Money (7 answers total)

As someone who's been down that road before (and reluctant to travel it again), I would suggest a policy of complete transparency and sitting down to determine some realistic time investments.

Basically, what I'd recommend is to first sit down with everyone involved (individually would be better, but depending on how your group gets along you might prefer a meeting), and ask them exactly how many hours they honestly and realistically believe they'll have to put into the project. This is going to be tricky, since most people will be reluctant to come up with a well-thought estimate, but it's absolutely vital for the overall health of the project.

Next, come up with a pie chart detailing everyone's contribution. This will be tricky again, since you may be tempted to give more weight to certain tasks than others -- for example, you might consider that, say, PHP programming hours should weigh a bit more than graphic design. In cases such as this (where everyone is working for no cash up front) I'd recommend you to avoid this and simply consider that everyone's time is worth the same. Egos are fragile, and you don't want to alienate anyone, particularly when they're willing to start working for free.

Finally, in a meeting with everyone involved, show your pie chart and tell everyone that their share will be equal to their investment in time. Here's where the transparency part comes in, since everyone there must be able to earnestly explain (in detail if need be) why they estimated X hours for their contribution.

There's always the issue that some guys, admins mostly, will have to continue putting in hours indefinitely. I'd advise to pay these guys not a percentage of earnings, but a fixed price per hour. Tricky again, but hopefully you yourself will be able to admin the thing and sidestep the issue.

Lord, this comment has gone on too long. Just a final word: not everyone will be happy. You can't make everyone happy, but you can be fair. And as long as people don't feel ripped off, they're usually able to put aside other concerns. Also, people expect leadership, so once you decide on a course of action (or method of share distribution) that is fair and balanced, stick with it.

Good luck.
posted by papafrita at 7:03 PM on September 5, 2007

Sorry, there are no formulas. You just try to do what everyone is comfortable with. Be open with each other about what you think you deserve for your expected work, and do your best to compromise on any significant differences in expectations.
posted by chundo at 8:39 PM on September 5, 2007

The key is to spell out exactly what is required/expected of each person. e.g. The designer gets 5% for spending X hours doing these tasks. And if s/he does more than that, then additional payment (or re-negotiation of the percentages) is due.

If the parameters are clear, then it's much easier for people to come to agreement. Otherwise it's really a shot in the dark and it becomes sort of a battle of how far you can push it
posted by winston at 8:48 PM on September 5, 2007

I would split 80% equally. The remaining 20% would be split after the project was finished and it was clear who had done the heavy lifting.
posted by oh pollo! at 1:22 AM on September 6, 2007

I would rather delay the launch and do everything myself than have to deal with the inevitable mess of splitting up profits.

I know you say there is "no cash", but paying up front (bringing on as few people as possible as partners) is the best policy (doubly so if these are friends).

Obviously different kinds of work are worth different amounts of money. The hardest to judge is graphic design work. Code is code, and has fairly simple metrics of success and quality (relatively speaking), whereas graphic design has a high degree of subjectivity and has less linear work flow. I can work on some design for 16 hours, and maybe 4 will half a tangible result in the end product outside the elimination of possibilities.

In short, do not bring your graphic designer on as a partner and bring on coders only as required (I'd keep to to one person - who documents everything very well - until you get some momentum).
posted by phrontist at 7:09 AM on September 6, 2007

"Is it insulting to offer a designer a 5% share for a few days work?"

Yes.
posted by yoyo_nyc at 7:17 AM on September 6, 2007

Huh. Interesting bias toward coders vs. designers in these answers. Some good tips though. I think pre-estimating hours expected to be spent is a good idea. I guess tracking actual time spent is important as well. But hours spent can go over or be exaggerated unnecessarily. I think it's a great idea to ask everyone up front what they think is a reasonable amount of time to make their initial contributions. It's perfectly okay to make a wrong estimate but I think having that perspective on record might be a good compliment to the actual hours spent. Once the work is done everyone's generally pretty high on their own contributions. But up front everyone wants to say "oh, I can finish that relatively easily and quickly." The truth is generally somewhere between these two so it's a good idea to capture both.

Thanks
posted by scarabic at 11:42 PM on September 6, 2007