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Comment by tptacek | Hacker News Reader

Let's take the most generous interpretation of what you could want to do as a contractor.

I keep reading "percentage" and that word makes me nervous.

Understandably so.

For example, a founder asks for help building an iphone app MVP (it's a very simple app, gives you recipies for great coffees for example) - I would probably be looking for 8-12%. This would be on the basis that he has put the legwork in to approach outside investors, has put together a reasonable pitch with backing, etc and may be expecting to sell the app 30,000 times for $0.99 within the first 18 months from launch.

Maybe for a more complex, time consuming and bigger project, I would ask for perhaps 15-18%.

As I say, all depends on the project and it's individual complexities.

Making you sweat yet? :)

Yes. The idea of giving whole integer percentage points of equity to someone who can't vest makes me nauseous.

There's three problems with your plan:

First, if the high-end of what you'd think of asking is 18%, then it seems likely that even the low end of your ask is in the founder/first-employee range. You're talking about numbers that hired CEOs get.

Second, the stake you're looking to take in these companies practically guarantees conflicts down the road; you're asking for so much that you're going to have to take an intense interest in valuation and dilution concerns. Who involves a contractor in things like that? Who gives a contractor a veto on funding or acquisition? Who funds a company that values 8% of their company so low?

Third, despite having risked virtually none of your own capital (again: evenings and weekends, divided among multiple companies), you're asking for a share comparable to what early employees who dedicate themselves to the company and take reduced salaries get; those employees, by the way, will all vest, unlike you.

I don't think this is a workable plan.

I think there may have been an interesting conversation in the 0.1-0.5% range, although my plan was to explain why it's dumb for both sides to give 0.1-0.5% of a company to someone as direct compensation for a transactional service, and how you could have made more money and made startups more happy by coming up with a clever deferred comp scheme pegged to equity valuations.

But at 8-18%, I'm not sure where to go with this.

>I'm not sure where to go with this.

Technical cofounder

It sounds to me like you're thinking of this in terms of revenue share - a deal where you get 15-18% of revenue (for an agreed period of time) might make sense for something like an iPhone app. That's not the same thing as startup equity though. As others have commented, anything that complicates the cap table like this can make it MUCH harder for companies to raise investment later on.

Along the lines of a traditional royalty model perhaps? I could see that being an interesting third possibility, versus either equity (as monkeymeister suggests) or deferred compensation (as tptacek suggests), or just plain cash. But yes, it seems like a good fit mainly for cases like an iPhone app where you have a specific delineable product to apply royalties to, roughly like you do with books or music albums.

Agreed - this is also another option. Perhaps I've placed a little too much emphasis on the equity stake side. This would also be a great way to proceed, with a straight royalty or revenue share option for the like of a partnership agreement.

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