A guy comes up with a business idea. It is a pretty good idea. He starts working on it. The idea takes hold. Others start encouraging him. Customers begin to say a tentative “yes” to his offer. The guy gets a friend to help him out. The guy tells the friend he cannot pay him but can share some equity and that they should discuss the amount and terms. The friend says no, don’t worry about it. Let’s deal with it later.
Later happens. The discussion takes place. The friend is insulted by the percentage offer of equity. The friend bails on the business idea. They are no longer friends.
The difference of opinion on equity percentages was probably a factor of 10. As sad a situation as this is, it is not as bad as many I see. Partners must discuss these types of arrangements up front.
Waiting until after the fact is terribly dangerous. Not only are feelings hurt, there are potential legal ownership issues to deal with. To top it all off, if the two parties cannot come to a break-up agreement, it becomes a “he said” vs. “he said” issue and resolution becomes extremely difficult.
Do not leave partnership or ownership issues for later. If someone is going to be in business with you, make sure they know going in what they are signing up for.