I am in the pre-funded prototype development stage of my product and have been making some very useful connections with people who are interested in contributing to the effort (UX, design, code, biz dev) for deferred compensation.<p>The part I want to think through carefully is how to protect both myself and the collaborators in this equation -- without writing formal legal contracts etc. It seems that getting into legal costs would put the cart before the horse at this stage. We're building the proof of concept.<p>My thoughts have been to write a brief statement of understanding that simply gets iterated/emailed/signed back and forth describing the timings, expectations and compensations. Not a formal legal doc, but at least concretizes and marks the basic understandings.<p>But I am trying to think through the compensation part. How does one structure something before one has an established biz structure? ....<p>* Equity.<p>* Placing a monetary value on hours spent to be compensated at time of investment and or revenue.<p>* The possibility of key role/involvement in the funded phase of the product.<p>It's more straightforward when there's simply a local-fulltime-team being built -- all agree on a division of equity and off you go. But I am talking about working with people in smaller time-chunks, and in scenarios where being a part of the ongoing team may not even be desired, or an option; for example a collaborator is half way around the globe and creates a set of visual themes.<p>It's great to be able to collaborate like this ...but how can we set this up so that when things do take off there are no messy situations, just coolness and excitement all around.<p>Appreciate any experiences, resources, ideas.
I have written an ominous-sounding article (entitled "Mistakes Founders Make - Ill-Documented Relationships") that describes some of the risks here. (<a href="http://www.grellas.com/faq_business_startup_009.html" rel="nofollow">http://www.grellas.com/faq_business_startup_009.html</a>)<p>For the venture: the IP developed by the loosely-affiliated team will belong to its individual members and not to the venture. Solution: need simple work-for-hire agreements (promise of future equity alone is OK as the "consideration").<p>For the individuals: getting stiffed on the promised equity.<p>By all means, do document this at least informally with a founder's term sheet.<p>By no means should you attach a money value to the services performed. If you do, and it gets audited, you will all have tax problems (generally, your services would constitute immediately taxable compensation even though all you would get is a piece of paper for it at the end). Keep all discussion on this framed solely as "x will get _% of equity in exchange for [whatever]" but without reference of any kind of money value.<p>Do remember to describe the attributes to be associated with any equity (e.g., "100% immediately vested," or "20% immediately vested with balance to vest ratably over 48 months subject to repurchase by company at cost upon any termination of holder's service relationship with the company" or whatever fits your team's expectations).<p>This kind of situation is inherently nebulous and can easily lead to problems with a far-flung team.<p>Best advice: keep everything on a short leash. That way, if someone gets burned, hurt will be minimized.<p>When trust is established, and company seems viable, get it documented legally ASAP.
I apologize for the spam, but I just was finishing a blog post about how you can use our site (<a href="http://FairSoftware.net" rel="nofollow">http://FairSoftware.net</a>) and its Software Bill of Rights as a free insurance between founders before they incorporate.<p>If you want true 0 cost, legally-enforceable system, you can register your project there, have everyone agree to the equity split. Then, everyone starts vesting their shares over time. That sort of takes care of 90% of the issues you'll face. When you become successful, you can just go your own route, incorporate, raise angel money, etc... but at least you put in place a recorded, auditable trail of what the equity is supposed to be among founders.<p>You can change the equity split later if everyone agrees, but if some founders become unfriendly, you have an insurance and can still legally use their contribution even if they never talk to you again :-)
IANAL so beware what I say.<p>Question: how legal savvy are you? You can write or find generic no-frills stuff yourself that can do in a pinch for small shares. Your "brief statement of understanding" is helpful - you can simply formalize that more.<p>I don't think you should/need to put a "monetary value on hours spent" - you're giving shares of equity and both parties agree to the deal. What else is there to say?<p>Words of advice:<p>* Vest whenever possible<p>* Give them as little as you can now so that you can attract them later to come on full-time (if that's what you want)<p>Good luck!
People working for equity - WHAT? I tried to find mobile phone developers / gui artists / server side programmers to do that and got laughed out of town! If there are people out there that want to be a part of a startup mobile/web app please reply. I'm in Vancouver BC. Thanks.<p>Newman, maybe you could instigate a webspace to connect idea types with coder types who are interested in working on a startup - even part time. Thanks.