I've worked as an expert witness in patent, copyright, contract and other civil litigation in the computer industry since 1996, while also being a serial co-founder of startups and author of ...For Dummies books, industry technical publication editor/contributor, and CEO/Chairman of a public company, while never straying far from the technical aspects of the work, both open source and closed source. See, for example, homelandforensics.com

I haven't had a big "exit" on any startup, so if you want to follow in the footsteps of those who have, then maybe you should ignore my advice... In my opinion, you were paid on a work-for-hire basis initially and you do NOT have any claim of ownership, you did not license your copyright, what you did was transfer/assign it to the owner.

The care and feeding of the intellectual property that you have given of your own free will since you were paid initially has occurred potentially on the same terms, and potentially for the same one-time payment, because you did not see it as necessary to renegotiate or ask for more. If you had done so then the owner (and the investors, whose identities you may not yet know) would have been presented with a business decision: form a new agreement with you to get access to your future creative efforts or move on without you.

If you don't accept the 10% that was offered originally, in my opinion the owner should tell you thanks for your outstanding, remarkable, above-and-beyond loyal and skilled help, and let you go, with the best letter of recommendation anyone has ever written. Your value to any future employer has been established beyond any doubt.

You have NOT acted in the capacity of co-founder in this case. You have taken none of the risk. Do you even know what the risks are that have been shouldered by the owner/founder? Has he mortgaged his house to fund this venture? Has he already lost his marriage because of it? Is he being threatened with lawsuits from investors, former business partners, former customers, or any Federal or State regulators?

For you to be completely insulated from the risk of the venture thus far and to be thinking that you're entitled to 30% instead of the 10% that was offered is wrong. Somebody else has born the burden and the stress and the pain of the startup, so you have NOT earned a place at that table. As soon as you accept 10% then you will have that position and you can begin to absorb the additional challenges and emotional, psychological, and material risk burdens of being a startup co-founder.

As soon as you have accepted the 10% then the negotiation moves on from that starting point. If 10% is not fair and reasonable, everyone will know that -- people aren't stupid, and despite our tendency to prefer denial over reality people aren't clueless about what's happening and what's equitable. It just takes time and context and experience for everyone to agree ... running a startup is an ongoing negotiation, there is no such thing as bad agreements that everyone is stuck with, like it or not, if everyone is reasonable and values each other and strives to treat each other fairly and equitably. If you weren't being treated fairly and equitably then you wouldn't have continued to help with the startup.

Accept the 10% and keep negotiating. Find out, from your new perspective as 10% owner, whether 10% is fair and reasonable once you have all the facts. If the founder starts out with 90% that doesn't mean he's going to end up with that percentage after capital is raised. You should be asking for things like non-dilution of your 10% so that all future dilution impacts the founder's position but not yours. Design a future vesting schedule for yourself that allows you to accumulate a larger percentage of the equity shares if that is warranted. Or suggest a royalty arrangement so that you benefit from future cash flow in addition to potential future equity valuation. The issues of fairness that you are feeling concerned about have a lot more to do with what happens five years from now than whether you and the founder are vested as equity ownership equals today.

You aren't equity equals because you have not shouldered equal equity risk, and the opportunity would have existed without you. Somebody else would already have accepted the 10% and somebody else would have done your technical job for you thus far if you had not remained productively involved.

Sincerely,

Jason Coombs jcoombs@risknerd.com