I am building a SAAS product to support the industry I currently work in (day job); I have legal sign off from my employer to build and test this product while I continue my employment. I intend to self-fund the MVP; I assembled a product plan and shopped it to SW development companies who could build out my product.
One of the development company owners I took the plan too is also an experienced entrepreneur; he has been running his development shop for a several years, in the past he launched companies, and most recently bought a small SAAS company (different market) and has most of his development staff assigned to that product.
After a couple of working sessions I am confident that his influence will be very helpful, he knows: product, product creation, UIX, and his team of engineers are well suited to build this application.
He likes the idea so much that wants to be an equity partner with me, but I would pay his guys hourly (at his cost) for the development work. Doing some rough calculations I can fund his guys for the first 4-6 months, then we would most likely seek outside capital.
I bring allot to the equation because in my day job I am the target user and I will immediately test the product in the real world (approved by my employer); on top of that I am funding the first 4-6 months of development.
He brings allot the equation too because he knows how to build products and has a team of engineers he can execute with.
I think bringing on this person as an equity partner sounds like an acceptable arrangement, as long as the founder equity split, vesting of that equity, and my cash investment into the company are fairly accounted for. I do worry that he might be distracted because he does own another company and he would not be focused 100% on my product.
If we decide to partner, what is a fair arrangement?
Super frustrating at times. I come from a place where I scale sales for start-ups, but I'll give this one a shot.
My recommendation is to keep it simple. Sample math: Say you grant 1% equity per every 20k profit (vet that number) he forgoes after the first 20k profit on the project, up to a percentage. Say 10%. This way you get the first x amount to make sure the work is what you want. After the 10%, if you still need the work to be done and it takes more to sink into the thing than you both thought, he'll still be in as he has a 10% stake.