Ask HN: How Much Equity For An Idea?
13 comments
Virtually no "ideas" are worth more than the price of the dinner you discuss them over. Wireframes strike me as much closer to professional services, which have market rates. If they're napkin levels of quality/fidelity then the market rate approaches the price of the napkin.
My friend and I recently encountered a similar situation -- we decided to put out a mobile game together, and we have a third friend that we knew was interested in joining the project. He could have given us lots of ideas, but little or no productivity.
My test for deciding if you want to bring an 'idea man' along is this:
Imagine that you and your friend -- the idea man -- work together at a nice day job. You both make a good salary. One day, your boss tells you that he wants to fire your friend (who wouldn't take a pay cut) unless you're willing to take a pay cut. Your have two choices: (1) take the pay cut, or (2) your friend gets fired. How big does that pay cut have to be before you let your friend get fired?
For me, it's less than $1,000/yr. I love my friends dearly, but I'm not going to pay a buddy just to hang out at work and keep me entertained.
Unless your friend's idea is going to make you wealthy enough that you no longer have to work, then you probably don't want to give him 5% of your company just to be your friend.
My test for deciding if you want to bring an 'idea man' along is this:
Imagine that you and your friend -- the idea man -- work together at a nice day job. You both make a good salary. One day, your boss tells you that he wants to fire your friend (who wouldn't take a pay cut) unless you're willing to take a pay cut. Your have two choices: (1) take the pay cut, or (2) your friend gets fired. How big does that pay cut have to be before you let your friend get fired?
For me, it's less than $1,000/yr. I love my friends dearly, but I'm not going to pay a buddy just to hang out at work and keep me entertained.
Unless your friend's idea is going to make you wealthy enough that you no longer have to work, then you probably don't want to give him 5% of your company just to be your friend.
Depends on the idea. If the idea is based on real world data, strong feedback and statistics - then, why not.
Otherwise is a complete zero. I personally have ideas for 10 lifetimes of work and that is just the top which I don't scrape after a brief analysis.
As others said - ideas, in their initial states, rarely worth anything. Experience shapes idea into an unrecognisable state and even the right ideas, without the correct offering, may fail.
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Sometimes an idea can be worth a lot. Image a working company in a bottleneck situation on their concept. They have a problem that blocks their scalability. If you bring up an idea, that will fit their situation and be an elegant solution - they this can be worth a lot. But this requires a tremendous experience in the field.
Otherwise is a complete zero. I personally have ideas for 10 lifetimes of work and that is just the top which I don't scrape after a brief analysis.
As others said - ideas, in their initial states, rarely worth anything. Experience shapes idea into an unrecognisable state and even the right ideas, without the correct offering, may fail.
---
Sometimes an idea can be worth a lot. Image a working company in a bottleneck situation on their concept. They have a problem that blocks their scalability. If you bring up an idea, that will fit their situation and be an elegant solution - they this can be worth a lot. But this requires a tremendous experience in the field.
As someone who has always heard, "Ideas are worthless without execution" and who was recently told, "Just because you have an App in the iTunes Store doesn't mean that you're not still at the idea stage" I'm going to say his idea isn't worth anything.
If I'm going to give 5% of my company to someone, it will be to my very first Dev who built V1.0 for very little money to build out his portfolio and because he liked the "idea". Without him I would never have had the opportunity that I do today.
If I'm going to give 5% of my company to someone, it will be to my very first Dev who built V1.0 for very little money to build out his portfolio and because he liked the "idea". Without him I would never have had the opportunity that I do today.
Serious question to you - if the idea is 0% and the v1.0 is 5%, what's the other 95%?
I'm not the original poster, but I believe the most important part is finding, creating and executing on the business model (value proposition, finding channels, CUSTOMERS), the coding is just a small part of the execution:
http://steveblank.com/2010/01/25/whats-a-startup-first-princ...
http://www.businessmodelgeneration.com/downloads/businessmod...
If your iOS app is just relying on the App Store as its channel, and the coding involved more than just writing to spec then maybe it's worth more than 5%, but the main value is in finding the spec, not coding it :) - if part of the value or the main part is having a good execution and user experience, it's also likely worth more than 5%, but it's maybe better for a VC-backed startup to just pay employees.
http://steveblank.com/2010/01/25/whats-a-startup-first-princ...
http://www.businessmodelgeneration.com/downloads/businessmod...
If your iOS app is just relying on the App Store as its channel, and the coding involved more than just writing to spec then maybe it's worth more than 5%, but the main value is in finding the spec, not coding it :) - if part of the value or the main part is having a good execution and user experience, it's also likely worth more than 5%, but it's maybe better for a VC-backed startup to just pay employees.
I'm guessing 0% unless the "idea" is more of a complex engineering theory of some kind.
For example, If the idea is "A better battery." Nothing. If the idea is "A new doping scheme using recent research in unrelated chlorine molecules that can drastically improve lithium ion battery life" then the person deserves equity.
For example, If the idea is "A better battery." Nothing. If the idea is "A new doping scheme using recent research in unrelated chlorine molecules that can drastically improve lithium ion battery life" then the person deserves equity.
Most people know that ideas are dime a dozen, even good ones, hence they hold little intrinsic value.
With that said, you are considering investing in the idea, so that means you think there is some value in it, at least to you.
Offer/give what you think is fair. If it makes you feel more comfortable, maybe do 5% up to a preset maximum?
With that said, you are considering investing in the idea, so that means you think there is some value in it, at least to you.
Offer/give what you think is fair. If it makes you feel more comfortable, maybe do 5% up to a preset maximum?
Conceivably, you could take your friends idea-- do some customer discovery and the idea morphs into something altogether very different. Where's your friend then? Do what you can to keep him as a bud. But a business partnership with equity requires a different level of commitment.
5% actually sounds about right to me, just based on gut.
If he continues to be involved, even in just an advisory capacity, I would think about issuing him more shares over time -- you might argue that at that point he's starting to provide product management assistance, or call him an advisor.
If he continues to be involved, even in just an advisory capacity, I would think about issuing him more shares over time -- you might argue that at that point he's starting to provide product management assistance, or call him an advisor.
Read/watch this advice from Derek Sivers. (The answer is 0)
http://sivers.org/multiply https://www.youtube.com/watch?v=QgaBvEO2LYY
http://sivers.org/multiply https://www.youtube.com/watch?v=QgaBvEO2LYY
Can you have your friend send some ideas my way? I've been looking for a good idea for a long time now.
0%
The original idea will inevitably morph into a completely different thing.
Edit:
If you must give something ( because it strikes your fancy) , then ensure they are non-voting shares and that he cannot prevent any ( and I mean any) amendments to the by-laws, shareholders agreement or the articles of incorporation. ( to the full extent of your laws)
The original idea will inevitably morph into a completely different thing.
Edit:
If you must give something ( because it strikes your fancy) , then ensure they are non-voting shares and that he cannot prevent any ( and I mean any) amendments to the by-laws, shareholders agreement or the articles of incorporation. ( to the full extent of your laws)
He wants me to run with the idea but he wants (and deserves) something for the idea. Has anyone been in this situation before and how did you solve it: a small amount of equity? cash outright? He mentioned 5% equity. That sounds reasonable but I thought I'd ask here.