How much equity, or value of a company's stock, you request in a partnership deliberation can be an awkward and even daunting task.
Do you ask for 20%? 25%? 50%? How do you even know where to begin?
All you know is that you don't want to ask for too little, because if/when the business is sold to someone else in a couple years you could miss out on a lot of money.
So, how can you ask for the right amount of equity that will be fair to all partners and make you feel confident moving forward as you grow the business? Consider the following.
Contributions
What is each partner bringing to the table? An existing product or the ability to build a product? Marketing skills? Influencer status? Time? Cash?
Maybe the time spent on growing the product won't be even, but if one partner has a large, relevant social media audience to tap into to promote the product, then maybe that contribution still weighs the same.
Business roles
What will your role at the business be? What are the roles of the other partner(s)? Will you be building the product? Take part in planning the product?
Or is the product already built and you're coming aboard as a content creator? And how will your role compare to that of the other partner(s)? Will they still be working on the business or not?
Having a larger role and greater set of responsibilities constitutes requesting a larger percentage of the product's equity.
Potential for growth
What is the product's potential? This will require that you perform some product and market research.
Does the product fit well with an existing, blossoming industry? Or is it a much-needed and much-requested tool for a large market of businesses?
Maybe the market for the product is a little more vague and uncertain. This would open the door for asking for a larger percentage of equity because the market isn't as obvious.
Profit/cost allocations
Is one partner receiving a larger allocation of the product's profit? Or covering more of the product's expenses? That definitely plays a role in equity.
If you believe in the long-term value of the product and want to receive a larger chunk when or if sold in the future, you may want to keep hold of a larger percentage of the equity. But, to do that, you may need to give up more of the profit allocation.
Same with expenses/costs. If one partner is paying the bills, then they should expect to be compensated for that in terms of equity.
So, then, how much equity do you ask for?
There are many different combinations of how the above could play out, but consider the following scenarios and suggested equity offers in each scenario.
Scenario 1: Product built, no revenue
In this scenario, there is a ready-made product that is able to receive paying customers but doesn't yet have any. Perhaps, the product developer is looking for a marketer to help attain new customers.
You, as the hopeful partner in this product, need to recognize all that has been done to this point - product research, planning, development, accounts setup, etc. And that you're jumping into a ready-to-go solution.
With all else being equal (i.e. roles), we'd suggest requesting 1/3rd or 33% equity of the product.
Scenario 2: Product built, $10,000/mo revenue
Similar to scenario 1, but the business has proven that it can make money and does. You'd also be walking into an already-valuable product equity.
You should consider how roles and responsibilities are weighted, but we'd recommend requesting 1/10th or 10% equity of the product.
Scenario 3: Product not yet built
In this scenario, there is still much work to be done on the product. You'll probably be asked to be involved with planning and maybe even development decisions.
This is a much more natural partnership, as you'll both need to put a good deal into the product (which might be a good thing for you) as well as selling that product.
For equity percentages, you'd need to consider roles and responsibilities. Sure, you could settle on a 50%-50% even split, but you might be able to ask for even more than that given the amount of work that will be required and roles post-launch.
Scenario 4: Product built, large role
In this scenario, we won't give an equity percentage but rather a thought-provoking scenario where maybe you're being brought in as a partner to take over the reigns so that the other existing partner(s) can take a step back.
In this case, the roles and responsibilities lean much harder on you although the product already exists.
Keep in mind that equity does not equal salary. You could actually negotiate to receive a higher allocation of the business's profits if the other partner wants to keep a higher percentage of the equity. Some partners have different priorities.
