Business Development · Equity

What equity do I give my biz dev and programmer potential partners?

Rebecca Zajac

November 25th, 2014

I'm in the process of forming my start-up. I am the creator, current sole founder and sole owner of phase I of my business. I also own the pending patent which is the key to the new concept. However, I have found a team of a biz dev partner, and programer whom are totally necessary for the success of phase II of my company and it's important to me to that they have skin in the game, but also important to value what I am bringing to the table,  the entire idea, an existing website, and thousands of followers from phase I of this business. I don't want to go below 51% equity, it took me 4 years to develop this concept, acquire customers and form relationships.  I personally own the pending patient and I need creative control to oversee phase II grows properly. I also need equity to bring investors on after we have programmed a demo. I'm not incorporated yet my current business is an LLC but I will be dissolving that LLC and incorporate to set myself up for investors. Initially my biz dev wanted 30% and my programmer hasn't prosed anything yet. My programmer has rare important skills essential to the concept and he would be programming PT on the weekends to come up with the demo.

I myself am a creative, inventor and designer. So I need the right team to help me follow though. I am all ears. I need outside advice, I want to make sure I set myself up for success from the beginning. Thank you!!

Kelly McIvor Product Commercialization | Mobile Strategy | Opportunity Developer

November 25th, 2014

Like Jessica mentioned, there are lots of discussions on this topic. But here is my view: You're idea isn't worth what you think it is (I have no idea what it is, BTW). But unless you have a product and customers you should drop the thinking that you need to have 51%. After you get seed or early-stage funding you won't have controlling interest anyway so just drop that now. What you need is a team - and you won't get funded without one - who is committed to the idea and has a big enough 'carrot' to make them leave their current gig or devote nights and weekends until cash is available. Without them your (provisional) patent is worthless. The fact that you have authored the idea and built a following is great but wouldn't be considered 'traction' by any serious investor. Give your co-founders (that IS what they are) a healthy stake (20%-25%, leaving room for an options pool for your advisory board and future employees - around 10%), build into that a vesting plan and consider them family until you find an exit.

Jessica Alter Entrepreneur & Advisor

November 25th, 2014

Not sure if you did a search but there are TONS of discussions about this

Rebecca Zajac

November 26th, 2014

Thanks for all the advice. I guess I should have been clear that phase I of my business I have worked full time the last 3 years and have generated revenue. Phase II is programming so my business is scalable. When I mentioned thousands of followers, a large portion of those are paying customers. I am beyond the idea phase. 

Rob G

December 1st, 2014

Rebecca, maybe i'm missing something in your description, but you say you have been at this for 4 years - 3 of those full time and you are generating revenue.  On the other hand you say you are "forming your startup..." and need help "building a demo".   So reading between the lines i'm guessing the current revenues are coming from consulting services and not a product? (or at least not 'the' product that has yet to be built/represented by the 'demo' to be built)?  Regarding "... need equity to bring investors on after we have programmed a demo", don't worry about that - you could give the programmer 33.33% and the 'biz dev' person 33.33% and keep 33.33% yourself and still have equity to issue to investors (i'm not suggesting that) - the 3 of you would simply all be diluted.   That being the case you are going to have to build more than a demo to attract investors.  you will need traction (in the subject matter that will be this 'demo') in addition to consulting/services revenue.  Investors will want to see how the technology you have built has leveraged/scaled the current revenue streams.   So, for a 4 year-old tech startup that is generating revenue (via the technology) my suggestion would be that you simply pay your developer a market rate for his/her services and give up no equity.  If you want the developer to have 'skin in the game' (which i think is wise)  you can offer equity in exchange for a reduced cash payment - developer's choice. example: 80% of market rate plus 0.25% - .5% equity in the form of options vesting over 4 years with a 1 yr cliff (just an example). or a bit more (3-5%) if this programmer has the skills and experience to be CTO.  Take a look at Buffer's approach to this for some ideas (link below).  As for the "biz dev" person, i would suggest leveraging his/her comp with commissions or bonuses based on revenue performance rather than equity. It is difficult to be more specific without understanding what you really need.  i suspect what you are really after is sales and biz dev is not sales (nor is it marketing or growth hacking).  We seem to have bastardize the term "biz dev" to the point that it's rather meaningless.  If what you are really after is truly biz dev then the details of the comp plan (including options and/or equity) get more complicated and i'd have to know more about your business to make educated suggestions.  On the other hand, if this product will dwarf the current revenue sources and thus completely change the kind of business you have today then that sounds like the product development and sales of that product are much more important to future growth/success and as such you should consider structuring equity for the developer and the revenue generator (sales person) for significantly more skin in the game and risk.  By the way, programming on weekends and evenings isn't a whole lot of skin in the game - same would go for a sales person if you are paying them.  Equity is commensurate with risk so i would not offer significant equity without significant risk for anyone you bring into any position.  And proof is key so vesting schedules are important. Don't forget IP assignment for the programmer to be sure the company owns the product that gets built.  Also, don't play up the pending patent too much. It's certainly fair to mention, but a pending patent doesn't buy you or a potential investor much.

Zac Kline

November 26th, 2014

Rebecca, Not sure that this will get to you, but my reaction is that 30% for BD is ABSURDLY HIGH. Bring people like that in at a low but reasonable initial number (5%-10%) with 4 year vesting and see what they do. With respect to the programmer, I would try to keep this at (10%-15%) also subject to vesting. Part-time is common, and your going to have to keep a constant pulse. Zac

Ben Griffin CEO Peer Group Facilitator | Executive Coach | Board of Directors | Strategic Thinking |

November 27th, 2014

O.K. Rebecca, with the added info that you have a 'going concern'...the Biz Dev person who is asking for 30% is basically living on some other planet...unless that person is willing to buy a 30% interest at current valuation, there is no way you should consider 'granting' or optioning a 30% interest...or anything even close to that...It sounds like you have a solid proof of concept and are generating revenue, so anything over 5% would be too rich, particularly given the dilution you can expect from bringing in outside investors.

Steve Tsuruda EVP/Head of Strategic Business Development at Redstone Technologies LLC

November 28th, 2014

After having built 9 startups I can tell you that any BD position should be base on performance. BD is critical in the launching of your group.

Offer instead of hard equity (founder or preferred shares).. think about revenue shares. That means shares grow with performance based their activities.

For example let say your company could realize 1million dollars revenue at the end of year one. your valuation would be 25x of year end net income.. let say net income was 60% revenue = $600K
x 25 = $15mm valuation

REVENUE SHARING PAYMENT - Participation in gross annual Company revenues at
the rate of .01% per Unit per year, continuing for a total of five calendar years for a
total of five (5) payments. The Company will make a cash payment of revenue sharing
to the investor at end of each of these five calendar years. After the five revenue
payments, the Units will be retired, with no further payments being due from your company
with respect to the Units. Share value would be $150 for example

EQUITY CONVERSION OPTION - At the time of each revenue payment, the share holder
has the option to convert any portion of the revenue payment to equity, up to a
maximum of .01% of equity per Unit over any 12-month period. The conversion
formula is the investor's chosen share of the annual revenue payment divided by the
Valuation, which is calculated as twenty-five times (25X) the Company's trailing
calendar year Net Income.

You can use this as your company dollars to acquire talent and reduce dilution until those persons helping you show performance (your matrix of performance can be agreed upon basis of work time, deals closed or other value points such as strategic partner deal, channels and or acquisition/merger.

In the near term your BD andadditionalkeypersonnel will be put into the risk area that you have and are rewarded on performance. Little Red hen offering. "help me make the get a piece.

Matthew Barmash Consultant, MEB Consulting

November 25th, 2014

Rebecca, Equity is all a letter of the exchange of cash on hand vs. future potential. In other words, it entirely depends. That being said, the numbers you are being asked to provide are beyond excessive for all situations outside of you ever being able to bring this product to market in another way. Please remember that everyone is replaceable. That does not mean you should not value the people you work with, but it does mean you should be careful in where you place your bets. Giving equity is is in essence a capital exposure for you. You never get it back do you need to spend it wisely. Best of luck.


November 26th, 2014


As said in many other posts on FD, setting up a Grunt Fund is probably the best way to go in your situation, in order to take your previous efforts into account. Take a look at for more info.

Also, you don't have to dissolve your LLC if you set it up in Delaware and can easily convert it to a Delaware C-Corp. It's really not that hard (I've done it), but you might want to get a lawyer involved (contact me if you need one).

Good luck with Phase II of your startup!

Mike Masello

November 26th, 2014

Your desire for 51% is understandable, but as others have said as you raise funds that isn't likely to remain.  There's no right or wrong percentage here.

You have to look at it from their point of view.  I'd be looking at your current revenue stream (if you have one), any funds raised, and assessing my own belief on what the 5-10 year return would be for a cashless position.  5-10% pre-funding would likely get diluted down to 2-5% if not greater.  Perhaps you could afford to pay a salary later, but there's no guarantees in place.  So if I joined full-time on the future promise of an exit at 1-2% and thought it would take 5 years there needs to be enough upside to offset the risk.

Mike Moyer's Grunt Fund book is definitely worth looking at.  In this case it may not be as applicable.  If you brought someone on, after 1 year you'd have 5/6 of the pie, they'd have 1/6; though the book does account for variables beyond time.  If in one year your new partner could quadruple your value that sounds like it'd be worth more than 1/6 of the pie.