I mentioned a personal project of mine in another thread. I don`t have cash to hire a designer and engineer to design the appliance, but I can offer a little something right now plus part of the company. Maybe. And I know that there are people who would accept such a deal. But my question is, what is the share of the equity that`s reasonable to give away in exchange for such service? Is there an objective model for how to structure such a deal? Or should I offer profit split instead of equity? Which one would be more beneficial to me in the long run?
While it seems like getting someone to accept an equity stake in your venture should be easy, that`s often not the case. For example, if you were to approach me with that offer, I`d be digging deep to see how you plan to offer me a liquidation event so that my share is actually worth something - many small businesses can`t answer that question, so a profit share may be more attractive to your help. 49% of a company that never liquidates its ownership isn`t worth a dime - unless your a corporation set up to share profits based on ownership percentages - I`m assuming that`s not the case here.
Just make sure it`s spelled out painfully clear how you determine profit and how it will be controlled in the future (i.e. you can`t raise your salary by more than 5% per year to try to scoop up excess profits in the form of your base pay, and things like that).