Loading...
Answers
MenuHow do I sell 5% equity on an iPhone app?
Answers
How did you come to the $10K number? Based on revenue? Each of your contributions? Tough to answer this without understanding if the app is on the upswing or on decline etc.
So...
Does he want 5% equity of the app or 5% residual royalties? My guess is that he wants to participate in the revenue. If that is the case, I would structure an X-year sliding deal that eventually worked him out of the app. It could be something like Year 1: 5% of PROFIT share. Year 2 3% of PROFIT share. Year 3 1% of PROFIT. Year 4? Nothing. It has to be based on PROFIT not REVENUE.
Structuring a company and then issuing "shares" in an app is insane to me given the likely lifespan of an app. Too much hassle.
I will leave the valuation and counterquestions about how you arrived at $10k out of this response since others have handled it. My advice would be to setup a formal entity asap (LLC or C Corp) using the resources here (FREE and thorough entity setups) http://www.foundersworkbench.com/
If you never plan on raising money for this and it is a lifestyle business then you can use an LLC and issue yourself 95% of the member units and your former partner 5% of the member units.
If you want to be more strategic and think you may have something that will grow into something or potential take on new investors in the future go with a Delaware C Corp and
Authorize 10m shares
Issue yourself 5m shares at par value .001 (will cost you $500 to establish the basis and you put this money into the corporate account in exchange for the shares you receive)
You then have another 5million shares for any potential option pools or future investors you need, but until issued your 5m shares represent 100% of the company undiluted.
You can either issue your former partner a warrant to purchase up to 250,000 shares of common stock at par value for a period of the next 2-3 years (you decide the runway) which would be 5% of what you have issued and outstanding.
Or you could put a 4 year vesting schedule in place whereby he has to provide certain ongoing advisory services etc and can buy the common stock today at par value like you ($25 to purchase the 250,000 shares) which would go into the corp acct in exchange for the stock certificates.
The 4 year vesting schedule means that each year he fully vests 50,000 of his purchased shares and that if he underperforms his agreed advisory role or you guys go a different direction the company has the right to buy those remaining unvested shares back from him at par value.)
In both cases you (and he) will have 30 days to file your 83B election with the IRS so talk to your accountant asap to make sure your 5m shares are registered for long term capital gains and that you won't pay ordinary income tax on the value of the shares in the future. (see http://www.orrick.com/Events-and-Publications/Documents/1955.pdf)
Hope some of those tips and links help you. :)
If you're offering him the 5%, you need to legalize it by forming a company and having it put into the documents. Your CPA or lawyers will guide you through the process.
Related Questions
-
If I am planning to launch a mobile app, do I need to register as a company before the launch?
I developed and published mobile apps as an individual for several years, and only formed a corporation later as things grew and it made sense. As far as Apple's App Store and Google Play are concerned, you can register as an individual developer without having a corporation. I'd be happy to help further over a call if you have any additional questions. Best of luck with your mobile app!AM
-
I've been working on an app concept for 6 months and built an MVP. Is it better to pay a development firm to build or hire a developer as a cofounder?
I have built two software companies by hiring out the development work. I sold one for a decent sum during the dot com era (circa 1999). I remain a shareholder in the other one. I currently work with amazing development company on behalf of one of my clients. Here are some things to consider. 1. Do you really want to give up equity? If not outsource. 2. How fast do you want to get to market? If sooner than later, outsource. 3. How capitalized are you? If undercapitalized, either outsource offshore (which runs about 20% of US rates), or bring on an equity development partner. I offer a free call to first time clients. Let's chat and I'll give you some great advice from three decades of experience. Just use this link to schedule the free call: https://clarity.fm/kevinmccarthy/FreeConsult Best regards, Kevin McCarthy Www.kevinmccarthy.comKM
-
iOS App: Beta vs Launch Quietly?
I would suggest launching in a foreign app store only (ex: Canada). That will allow you to get more organic users to continue iterating without a big push. I got this idea from Matt Brezina (Founder of Sincerely, previously Xobni) https://clarity.fm/brezina - he's the man when it comes to testing & iterating mobile apps.DM
-
What tools to use for mobile Prototyping ?
My 2 favourite are: - www.uxpin.com - www.flinto.com Flinto is by far my favorite for mobile. I also us www.balsamiq.com for anything wireframe. Sometimes I jump into Sketch http://www.bohemiancoding.com/sketch/ for more high fidelity mockups using their Mirror feature http://www.bohemiancoding.com/sketch/mirror/ Hope that helps. P.S. There's a tonne of Mobile UX experts on Clarity, many $1/min - call them, you'll learn so much. my2cents.DM
-
What is the generally agreed upon "good" DAU/MAU for mobile apps?
You are right that the range is wide. You need to figure what are good values to have for your category. Also, you can focus on the trend (is your DAU/MAU increasing vs decreasing after you make changes) even if benchmarking is tough. Unless your app is adding a huge number of users every day (which can skew DAU/MAU), you can trust the ratio as a good indication of how engaged your users are. For games, DAU/MAU of ~20-30% is considered to be pretty good. For social apps, like a messenger app, a successful one would have a DAU/MAU closer to 50%. In general most apps struggle to get to DAU/MAU of 20% or more. Make sure you have the right definition of who is an active user for your app, and get a good sense of what % of users are actually using your app every day. Happy to discuss what is a good benchmark for your specific app depending on what it does.SG
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.