What Is The Value Of An Idea?

nuttlys

Interested to find out what peoples think the value of an idea is in terms of Shares splits?

For example, if 2 people form a company, Person A has the idea and Person B has the skills and does 95% of the work (and lets say they both put in same amount of capital investment), should it be a 50/50?

I'm probably in the camp that without correct execution and even modification during execution, an idea is just that - an idea, and for all intents and purposes is in fact worthless.

smeharg

It probably depends on the negotiating skills of the respective parties and whether they can come to an agreement.

One would also have to consider the other skills the "idea" person could bring to the venture that the technical person doesn't have.

Obviously if the idea is patented the idea person would have significantly more bargaining power.

zig

This is just an opinion tbh, not sure if you are looking for something more exact, but I think an idea has very very low value. Especially if the limitations of the details of the idea go as fas as the person with the idea being able to explain it in a few sentences.

The reason I say this is because coming up with an idea be it by accident or on purpose is useless on its own, really. Im sure some people here can think of a time when they saw a product out there and they said to themselves "I thought of that before", so what , you didnt do anything about it! So did another couple of 1000 people probably, they just never did anything with it either.

BUT, coming up with an idea, developing it, making it something real, making it marketable, creating value out of it, and ultimately creating a succesful business out of it. Now THATS value!

Regarding your question, if capital investment is 50/50 then as smeharg says, its really up to what kind of deal the person with the idea can get out of it.

bogwalrus

If i have an idea and find a partner that thinks its great and willing to invest then i would be a very happy camper and more than willing to have it 50/50. If down the line I feel i am useless at doing the work while the other more skilled person is doing over 75% of all the work then they should be entitled to a better wage out of company or have grounds to ask for more stake in the company. I think Giving a higher wage to the person doing more work and keeping things 50/50 is the better way to go.

amen

should it be a 50/50?

what ever about the share split you need to protect yourself so that the other person can't sell without letting your know first and having first refusal.

You also need to ensure that if you make it big and that someone want to buy the company that your shares are sold in proportion i.e. you hold 30%, someone else has 70%. The guy with the 70% can't just sell his 70% to the buyer. Rather if the buyer most buy equal percentages from both of you.

There are loads of other clauses you need to protect your interest. If you are serious see a solicitor.

TheCostumeShop.ie: Ronan

Idea's are basically worthless, it's all about the ability to execute. There is a huge value to preforming the execution, committing to do 95% of the work and the ability to deliver ROI. The equity is based as much on capital invested as value for your time and the return the other investor would get on their money. If ROI isn't agreed or can vary personally I like to use ratchet clauses.

I think you need professional advise on it.

deman

The partner doing the work should be on a salary and then dividends divided between shareholders.

smcgiff

+1 to the above idea re salary option.

I wouldn't be in the camp that says ideas are worthless. There are ideas and then there are ideas!

TheCostumeShop.ie: Ronan

deman wrote: »

The partner doing the work should be on a salary and then dividends divided between shareholders.

In text book theory I might agree, but in reality the money runs out and in start ups there is always a premium on cash. What happens when there is no money left to pay the director? He might work for free for a while building up debts the company owes him/her but then he's assuming more risk than his partner for equal reward in terms of dividends / equity. Also the chance of round two investment into a business that has salary debt to the founder is a no go.

Raising capital for a business and saying that the money is going to pay the directors wages isn't something that is appealing to many investors. The normal arrangement is you put in your time (time risk) and they risk their money. Look at it from an investors side: micro / small start up needs 100k for start up costs (50 each) and say needs one employees at 25k per annum, you double the amount to 50k for their overheads (PRSI, expenses etc) and you now need 150k investment. Now the second investor is spending 150k to get more equity of the same business, also the proposer has less skin in the game as he/she has a wage and could always leave for another job so never really experiences "The Fear".

Remember if one persons idea and they are asking for investment, the second person has opportunity cost for the money. Essentially it will be turned around into I'll invest 50k which is put away for myself in wages and you invest 100k to run the business.

It all comes down to negotiation but for me this scenario would definitely not end up in a non-controlling equity split.

inspired38

There are millions of ideas out there but very few are actually acted on. As the saying goes, a Positive Idea without Positive Action gives you Positively Nothing. Normally if both people are working within the same business, the Business owns the idea and then the equity share remains the same. If that does not appeal, the a separate business would have to be set up and then sell their idea to the company. That would test the idea generators value of their idea.