Any experience with developer equity deals?

[lokiofuk]

So a while ago clientCo ran out of money, the two business owners couldn't afford to pay myself (coder) or the only other employee (dba).

Both former employees (me and dba) have said we believe the project is a good one and have done some work free of charge over the last while as well as come up with ideas for improvement etc.

We're now at a point that the business is still generating very little revenue (not even enough to cover server costs) but depending on several market factors does stand a chance to be eventually generating a very healthy profit within a year or two (or 5).

We've started discussing proper terms for our ongoing technical development and support in regards to either equity-share, revenue-share, part-time or future-full-time work.

Does anyone have any experience with developer equity-share or revenue-share deals to keep development in ill-funded startups alive? Any advice?

Equity share would interesting but then once the technical staff have their equity whats to stop them quitting to work on something else? Or the inverse, while the project is making little to no profit how does the techincal staff live day to day?

Its all very interesting but any experiences or advice would be appreciated!!

[SueEllen]

Do a search on this forum this sort of thing has been talked about before.

The rule of thumb is that you have negotiate any contract hard and ensured it's looked at by a solicitor, as the owners have lots of easy ways of screwing you.

[jmo21]

Could be great...... if they eventually become profitable.

So, only you can answer whether you can afford a year or whatever without pay, before finally getting paid.... or not.

[nomadd]

We're now at a point that the business is still generating very little revenue (not even enough to cover server costs) but depending on several market factors does stand a chance to be eventually generating a very healthy profit within a year or two (or 5).

Its all very interesting but any experiences or advice would be appreciated!!

Also sounds very unlikely to ever return a profit to me, but then you're on the inside so may know better...

I'd personally look to go in very hard with my demands. I guess I'd open with a 20% (absolute min.) stake in the business, and I'd want to be working on it evening and weekends only so I could have another regular contract to keep me fed. Even then, I'd only accept these terms if I was pretty damn sure the business was going to be worth something and turn in a reasonable profit in under two years.

That's my opinion, for what it's worth.

[VectraMan]

I'd want to be working on it evening and weekends only so I could have another regular contract to keep me fed. Even then, I'd only accept these terms if I was pretty damn sure the business was going to be worth something and turn in a reasonable profit in under two years.

I've been essentially doing this for 5 or 6 years now as a bit of a plan B, and it has earned me some money along the way but is far from successful and I think we're in agreement now that an upcoming release will be the last try. I'm sure the majority of people that enter into this sort of deal get burned, and perhaps the best advice is to walk away.

But OTOH nobody who is über-successful got there without taking a big risk, so it all depends on your attitude to that risk. In my case, I actually enjoy working on this far more than anything else I've done and wish I could afford to be doing it full time, and do genuinely believe there's an oppurtunity.

As others have said, just be clear on what the terms are beforehand.

[BlasterBates]

I think the success statistic for startups is pretty abysmal, for this kind of thing. What sort of debts do they have? Form what I recall, venture capitalists would invest in something like 10 or 20 companies to see one succesfull company. I don't know the exact statistic so a good idea to check.

Probably not a bad idea as a side bet, but I wouldn't do more than part time on this.

We don't know what the business model is, so hard to judge. You'll know better.

Watch out for the company being put into bankruptcy and new one started to clear the debts. In that case you lose everything. It wouldn't even need to go into bankruptcy, a renegotiation with creditors would be enough to see your equity stake become nearly worthless.

Alarm bells need to be ringing here as they can't pay you, to be honest sounds more like a startup heading for failure.