What is an idea worth?
26 comments
Ideas by themselves are not worth very much. Its really about how the idea is executed that matters. Apparently ideas are not worth much very much in the legal sense either, unless backed by a patent.
If you are just starting out you might want to consider an equal 1/3 split between everyone. For our startup, I've been doing most of the work up until now, but I still insist that we each have equal share. I want everyone to be accountable and feel responsible for the companies success. Basically, no one should ever feel less obligated due to a lower ownership percentages; we all have to work our asses off 100% in order to win. Even small changes to the initial split could alter this balance. At least that is my opinion.
If you are just starting out you might want to consider an equal 1/3 split between everyone. For our startup, I've been doing most of the work up until now, but I still insist that we each have equal share. I want everyone to be accountable and feel responsible for the companies success. Basically, no one should ever feel less obligated due to a lower ownership percentages; we all have to work our asses off 100% in order to win. Even small changes to the initial split could alter this balance. At least that is my opinion.
I also put the most emphasis on execution when it comes to starting off. I think ideas really are a dime a dozen.
I guess the trickier question comes when someone has a lot more domain knowledge and some contacts in the field. This knowledge can translate into a "good idea" that is solving a problem in the industry. How much does this factor in?
I guess the trickier question comes when someone has a lot more domain knowledge and some contacts in the field. This knowledge can translate into a "good idea" that is solving a problem in the industry. How much does this factor in?
I guess ideally each person would contribute something valuable to the team (maybe something the others dont have), making the even 1/3 split justified. The person you talk about would be contributing their domain knowledge.
If one persons contribution is low to point that an even split couldn't be justified, then I would just make sure that you really need them as a co-founder, as apposed to an early employee. If things are close though I would try to justify the even split so everyone is on the same plane.
In my opinion its just not worth getting greedy over small percentages, if it could compromise the success of the team or cause internal strife. The following quote comes to mind: "I'd rather have a slice of the watermelon than a whole grape."
If one persons contribution is low to point that an even split couldn't be justified, then I would just make sure that you really need them as a co-founder, as apposed to an early employee. If things are close though I would try to justify the even split so everyone is on the same plane.
In my opinion its just not worth getting greedy over small percentages, if it could compromise the success of the team or cause internal strife. The following quote comes to mind: "I'd rather have a slice of the watermelon than a whole grape."
> I think ideas really are a dime a dozen.
But really good ideas are rare.
I understand that an idea not backed by an implementation is near useless, but the current mantra about the value of ideas is sort of like saying that cars are a dime a dozen, and it's the driver that matters.
All other things being equal, though, your raw materials (cars or ideas or what have you) do matter.
Current patent nonsense aside, there are often good reasons why people do not want others to know exactly what they are planning or doing, or want a means to restrict others from attempting their own implementation.
But really good ideas are rare.
I understand that an idea not backed by an implementation is near useless, but the current mantra about the value of ideas is sort of like saying that cars are a dime a dozen, and it's the driver that matters.
All other things being equal, though, your raw materials (cars or ideas or what have you) do matter.
Current patent nonsense aside, there are often good reasons why people do not want others to know exactly what they are planning or doing, or want a means to restrict others from attempting their own implementation.
I don't think most people with good ideas are capable of recognizing whether they are good or really good ideas, the market gets to decide.
Except for me, I know I have really good ideas. ;)
Except for me, I know I have really good ideas. ;)
> I don't think most people with good ideas are capable of recognizing whether they are good or really good ideas,
Alan Kay said (more or less) that point of view is worth 80 IQ points. A good team needs people who can see the different angles to other's ideas, and help prod or reshape or prune them.
Alan Kay said (more or less) that point of view is worth 80 IQ points. A good team needs people who can see the different angles to other's ideas, and help prod or reshape or prune them.
I wouldn't claim more equity for being the idea giver. It is hard enough to find co-founders as it is, so I figure giving away my idea for free is the price I have to pay to convince other people to join me. Hopefully we will still all get rich, so who cares.
It would annoy me if the co-founders were less dedicated to the idea than I am. In that case I would try to negotiate more equity from the beginning.
It would annoy me if the co-founders were less dedicated to the idea than I am. In that case I would try to negotiate more equity from the beginning.
I totally agree with this. A good co-founder is way more important than a few more equity points because it was your idea. It might be different if you've spent 6 months on your own building it, though.
I disagree about the dedication--I wouldn't even bother working with a cofounder who wasn't as dedicated.
I disagree about the dedication--I wouldn't even bother working with a cofounder who wasn't as dedicated.
Unless we're talking about a patented technology, IMO you shouldn't even consider the initial idea when discussing equity.
If I were in a startup, I'd want it to be a total free-for-all where new ideas are valued. Not one where the older ideas are considered to be worth more. That's totally backwards -- your ideas about the business are likely to change and become more valuable as you gain experience and talk with customers. And unless you prefer co-founders who treat it as a 9 to 5 job where they are mere implementors, they will be coming up with many of the important ideas too.
The worth of the initial idea is measured in the fact that you got other people to even commit to the project. Call that a victory and move on.
If I were in a startup, I'd want it to be a total free-for-all where new ideas are valued. Not one where the older ideas are considered to be worth more. That's totally backwards -- your ideas about the business are likely to change and become more valuable as you gain experience and talk with customers. And unless you prefer co-founders who treat it as a 9 to 5 job where they are mere implementors, they will be coming up with many of the important ideas too.
The worth of the initial idea is measured in the fact that you got other people to even commit to the project. Call that a victory and move on.
Exactly. For what I consider to be the best idea I ever had, I was able to attract three very talented people to apply to Y Combinator with me, with a 25/25/25/25 split. The value of my idea was that it made people excited in its potential and my 25% was only valuable with the contributions of my partners.
A good friend who knew a fair bit about start-up strategy told me that patenting technology is mainly a defensive maneuver. So, even if you have something patented, I think the latter part holds.
If I might suggest a simpler question?
"How do I value this idea maximize my odds of getting genuinely rich from this venture?"
The question isn't "how much is this worth?" at all. It's "how do I price this to maximize the odds of success and the dollar worth of my share."
If you do very well and sell for $10m, the practical difference between 33% and 50% in terms of your quality of life is quite small.
On the other hand, a feeling of uneven split between founders, particularly as the start up moves further and further from the basic concept you started with, is a potential contributor to a "50% of nothing is nothing" situation.
Once the game starts, it doesn't matter who put what on the table: if you're not actively getting screwed get your head down and focus on making what you "own" worth something, rather than worrying about how the loot is divided.
"How do I value this idea maximize my odds of getting genuinely rich from this venture?"
The question isn't "how much is this worth?" at all. It's "how do I price this to maximize the odds of success and the dollar worth of my share."
If you do very well and sell for $10m, the practical difference between 33% and 50% in terms of your quality of life is quite small.
On the other hand, a feeling of uneven split between founders, particularly as the start up moves further and further from the basic concept you started with, is a potential contributor to a "50% of nothing is nothing" situation.
Once the game starts, it doesn't matter who put what on the table: if you're not actively getting screwed get your head down and focus on making what you "own" worth something, rather than worrying about how the loot is divided.
Smart way of thinking about it, that gets to the heart of the question, rather than repeating the trite 'worth nothing', which is obviously going to piss off the idea guy, and create problems.
"What is the idea worth?" -- Not much really. People have ideas all the damn time, but it is execution that counts. Maybe %2-%5 of the company, MAX.
That 2-5% is worth only if you come with something novel + a plan and strategy how to make it happen, and some contacts-help.
If all you say let's "do a music application for kids under 12", that is worth nada.
That 2-5% is worth only if you come with something novel + a plan and strategy how to make it happen, and some contacts-help.
If all you say let's "do a music application for kids under 12", that is worth nada.
I don't understand what all these people are talking about. A good idea is extremely valuable. A bad idea is a vicious liability.
The problem is the marketplace. Most people aren't very good at telling if an idea is good or not. They're likely to value such an idea low. You don't really want to cofound with these people.
However, brilliant people are likely to have ideas of their own. Ideas that they'd like to work on. One can rationalize an even split, then, by considering an even split as payment for working on your idea, and not their's. Brilliant people would probably rather do their own thing -- you need to give them creative and strategic input, and you need them to feel like partners.
They just have to be good. I'm not going to give someone I'm feeling shaky on an equal stake in my company -- I wouldn't advise this for anyone.
The problem is the marketplace. Most people aren't very good at telling if an idea is good or not. They're likely to value such an idea low. You don't really want to cofound with these people.
However, brilliant people are likely to have ideas of their own. Ideas that they'd like to work on. One can rationalize an even split, then, by considering an even split as payment for working on your idea, and not their's. Brilliant people would probably rather do their own thing -- you need to give them creative and strategic input, and you need them to feel like partners.
They just have to be good. I'm not going to give someone I'm feeling shaky on an equal stake in my company -- I wouldn't advise this for anyone.
Ideas are worth (almost) nothing. In the information age there are as many ideas as there were rocks in the stone age. It's having the ingenuity and work ethic to make something out of the (rock) idea that will separate you from everyone else who has a worthless idea.
A mentor once told me "talk is cheap until you hire a lawyer", that said ideas alone without a definitive plan on how to tackle it followed by actual execution is nothing but hot air.
> What is the idea worth?
"The idea"? How about an example of an intrinsically valuable idea that, by itself, is enough to build a biz?
Take google. "Use citations to rank web pages" is not all that valuable an idea. Figuring out how to do so is more valuable (albeit dependent), but still not enough to build a biz.
If "the idea" is trivially executed AND "enough", then it's a big contribution. More likely, it's a signpost.
"The idea"? How about an example of an intrinsically valuable idea that, by itself, is enough to build a biz?
Take google. "Use citations to rank web pages" is not all that valuable an idea. Figuring out how to do so is more valuable (albeit dependent), but still not enough to build a biz.
If "the idea" is trivially executed AND "enough", then it's a big contribution. More likely, it's a signpost.
If the work is of a commodity nature (ie something a quick visit to rentacoder could accomplish) then the idea is worth a lot, relatively. But most ideas aren't worth much. It depends. Ask yourself: Does my idea fit one of these molds:
Social networking for X.
A combination of google maps and Y.
An online app to let you keep a personal list of Z.
...then your idea isn't worth much.
Social networking for X.
A combination of google maps and Y.
An online app to let you keep a personal list of Z.
...then your idea isn't worth much.
I think the idea itself isn't worth much intrinsicially--there are indeed infinitely decent ones out there. But the idea directly fuels passion, which is extremely valuable.
consider equity as a reward for risk taken. if people want more equity, they should take more risk (drop out of school etc)
It is one of many necessary but insufficient conditions. Like having a clean criminal record when applying to college.
I believe an idea is the most important part of a startup. However the idea is useless in the wrong hands, A paint brush in most peoples hands does not mean much,but in an artists hands it's very powerful. Never the less the artists is nothing with out the brush.
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The person with the idea should get at least 50% of the company.
What is the idea worth? If there are 3 people, how could you split up things from the beginning? Is the idea worth anything?
On the same note, if someone has some domain knowledge and contacts in the field, how should that play into the first split?
I have discussed this with several people, and their opinions have been wildly varied, so let me know your thoughts!