We are a Digital Agency about to hire a technical partner to work on sweat equity. How do I negotiate the terms?

Please excuse the details I've provided below, as this topic is out of my experience. I own a digital agency that specializes in the design, development and marketing of eCommerce websites. I've grown the company from a home based business into a successful digital agency that is doing around $400k in revenue. I've got to a point were i need a technical partner in-order to scale this company to the next level. An employee isn't going to cut it for me, I want someone to have a commitment to the company. I was recommended to find someone who has mid level experience in frontend and backend development, as their expectations wouldn't be too high. I've found a perfect partner who meets my requirements and is willing to jump at the opportunity. The potential partner has no family responsibilities i.e. kids, wife, house etc, so he can take a risk. The partner will not be investing any capital, but will be Partnership Finalization Ideas: - I'm thinking of putting him on a 12 month paid trial, with a clause for a review of the partnership every 3 months to see how its going, where we can break away if there are any issues. After 12 months of the partnership being successful, I will then finalize an agreement to make him an official owner of the business. What are your thoughts on this? - How much percentage should I be giving up? Remember its a sweat equity deal. - Should he be on the same salary as me? or would it be lower? Even after 12 months once he becomes an official owner? - Can I implement a clause that he can only be an owner of the company as long as he remains at the company working? Example: If I give him 10% ownership of the company after 12 months, the 10% would only be valid if he remained at the company. - Are there any other things I should consider?


Few things to consider here, definitely would want to be looking at vesting the equity, good article on that here to get you started:

I'd also be looking at a technical gun to be reviewing him from a technical standpoint, if you aren't a developer yourself it's difficult to review him from a code standard type standpoint, so I'd get that checked off also.

Regarding salary, % of equity and all of that, it's just what is the expected increase in business value through his contribution and then work back from there. Performance and bonus structures work well to incentivise without risking a large salary portion.

Also be wary of your fixed costs basically doubling if you're used to only paying yourself a salary and all other costs are variable i.e. development costs based on customers etc.

Few points that hopefully help out!

Answered 9 years ago

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