How to Work for Equity

Question

Hi HNers!I am a very good software dev mostly working on mobile apps.About twice a year I will have a friend approach me with a great mobile app idea. The friend has an exciting idea (which I also like) but they have little money. I work a day job at a rate they can't match my normal payments. These app ideas are very simple to me to implement and usually take 2 days for me to build from scratch and have minimal maintenance.I was wondering if I can do an equity-type deal where I own 40% of the app, in exchange for me building the app and doing some maintenance. I see some potential in some of the app ideas being pitched to me, as some apps could become really good.I was thinking I would take 40% of profits, and if the app is sold to another company get 40% of the profitHas anyone built a software app on a deal like this? Is this even legally possible?Location AustraliaThanksPete

ChrisCinelli · Accepted Answer

You can do revenue share. That does not necessary involve equity in the company. You can request equity in the business but the stakeholders really decide what to do with profits. Young businesses usually do not share profits (assuming they even have them) and reinvest in the company (assuming there are profits). Profits (not revenues) may be shared among stake holders as dividends but it never happens in startups.
However, this is something to consider. It looks like you have a cash flow problem. Equity or future revenues do not pay your bills right now. And an app may end up to be worth 0 so even the future value can be 0. That is probably the case. How many of your friend that asked you to build an app for them are making any money 6 months after you talk with them?
It is not impossible but I would be very surprised that an app that you can build in 2 days and require minimal maintenance can really make money to somebody unless there is already a healthy business that can use it.

saluki · Answer

I would go for it, especially if the initial build is 2 days of work. You could build up a portfolio of apps.
If they are providing the idea and you are doing the execution go for a 50/50 split of profit and any sale in the future.
Get it in writing as a simple contract. You should probably consult an attorney. Not sure of the legal structure and payments to each of you down under. An attorney and accountant could point you in the right direction there.
Setup the apps using your developer account and maintain control of the source code.

mrfusion · Answer

If all they provide is the idea you should own 100% and throw them $5.

Foober223 · Answer

Are they spending $$$ on marketing? Do they have connections to someone with a problem the software will solve? These things are worth money, and might be worth partnering.But if this is just something that will be thrown into an app store and hope for the best, then I see 0 value in an idea alone. Make your own 2 day app and throw it into the app store. Reap what you sow.

theli0nheart · Answer

Taking 40% of the company for two days of work and then hanging up your hat, expecting your friend to run the business, is not a good deal for him.

wprapido · Answer

Don't!

bluelu · Answer

If it's a friend and only takes 2 days, why not just build it for him?If you plan on only working on it 2 days with minimal maintenance afterwards, and your friend is working on it full time (marketing), then you should own 0%.