Ask HN: How Would You Negotiate This Deal?

Quote them on the prototype and do the bare minimum they'll need to sell it into the market. Don't sign over your IP for the code (remember - if you write it, you own it).

Once they've got some runs on the board, then negotiate equity in the product because at that point you have equal power - they have the clients, you have the product.

I would strongly advise against working for free in exchange for equity - it's a common story and not one that I've ever heard positive stories about from those involved.

This tradesman was single and just started using some of the then "newish" on-line dating sites in Australia. His idea was this was a growing market and why could we not build a site also. He would provide the funds for hosting, legal etc, my other friend would do the design and graphics and me and another friend from Uni would do the backend code.

We were each offered a deal where would not get paid but get 5% each in the new company. The graphics guy would get 20% and the money guy 60%. I think this is where the problems originally started. We agreed to this but we were not happy with the deal and felt that since we were doing a lot of the work we should get a larger percentage of equity although we were not putting up any cash.

Anyways we wrote the entire thing in cold fusion, then re-wrote it in .Net, because we decided halway through it was better [Duke Nukem problem]. The scope kept expanding, we had a major problem with the fact that we had no idea how to get a database of people to start with, who wants to be the first one on a a dating site? Also the real killer was that the day job was getting increasingly busy and it was hard to find time to work on this project and again motivation was a major factor. We gave up with the site about 80% complete, lost the relationships with the graphics friend and his benefactor (he lost his about $1-2k invested in hosting, domain name and legal feeds in setting up the company). Never know if the site would have been a hit or we would have lost the house getting hacked due to the multiple SQL injection vulnerabilities that existed in the code.

So some lessons I would suggest: A) Get a good deal that you are going to be happy with and what will motivate you (whether real or not even on the social network Zuckerburg got a 70-30 split for technical vs financial input). A split of a discounted daily rate as well some equity I think is a good balance. That way if you do believe in the site there is a skin in the game and access to possible future returns. If it goes no where you have some cash for your work and lessons learnt B) Make sure you write down and agree the requirements and scope and both parties have to agree in writing for any variation - agree upfront what you will launch with and try very hard not to change this. Agree what the warranty period will be to fix bugs, and what will be an enhancement that will require additional fee / equity.

C) Make sure you realistically have the time to work on this.

Good luck wish you all the best!

Then you can make a decision based on how much you want to risk.

Without knowing the whole situation, I personally would lean towards taking cash. Offers like this are a dime a dozen. If you want to work for equity, there's tons of people looking for a technical co-founder. I would reserve taking equity for situations where you play a more active part in the direction of the business.

I'm not sure where you are in life (job, family, et al), so let's just assume you are in a position with nothing to lose besides your time in this situation...

I would consider the vested interest.

If it's as seamless as it sounds with these connections, it sounds like you are set up for success (it's rarely as seamless as it seems but all things considered, this sounds pretty good).

Just make sure they give you a decent cut -

"What do you stand to loose?" - Worst case scenario you would have spend time on creating something which gets failed or they cut you off - In any situation you'll be learning invaluable lessons.

Of course if you end up taking up resources in form of people or material you can ask them to take the costs up for that. Try to position yourself a technical co founder on the team.

Whenever anyone suggests you work for "free," that's a giant red flag. Try asking for 50% of the equity. If they balk, quote some numbers. Or use the hybrid approach as others suggested.

Remember this old saying about "spec work." Don't "spec" to get paid.

Equity is a potential bonus, but also a distraction and should not substitute for initial work with people you barely know...structuring the deal right is complex and expensive.

Finally, there may be a good reason that it "has never been done before." Knowing the key players isn't the same as getting them to fall over themselves to pay you.