I love advising early-stage startups. A question I get frequently is “how to formalize bringing a co-founder on board.” I could write a book on the topic, but it’s really much simpler than that.

Here’s how you do it in one tweet:

@joe I expect this co-founder position to be worth ~30% equity. My goal is to incorporate in about a month, let’s see how it goes by then.

Really, that’s all there is to it. Now if you are curious to know why this is the right way to do it, read on.

You must commit to a number upfront

You need to make the potential co-founder a promise. Something tangible that clearly spells out how much of the company they’ll be getting. You can’t avoid a discussion with a specific number. Am I getting 30% or 5%? That makes a huge difference. By putting it in “writing” (a tweet), you are giving enough rope for the co-founder to sue you if you completely abuse the situation.

You’d be amazed by how many startups I coach that tell me they haven’t discussed equity split yet, although they have been coding along for 6 months or more… The longer you wait to have that discussion, the worse it gets. Be upfront.

You need a way out

Frankly, you should not sign a definitive co-founder agreement with someone you haven’t work with yet. In my experience (confirmed by talking to many entrepreneurs facing the same situation), it takes about a month to know whether it’s going to work out or not. So work together informally for a month, and decide then. Follow your instincts. If after one month, the only contribution of the co-founder are excuses and delay, just stop, don’t try to save the situation and hope that it will get better. It doesn’t.

You need to be fair

While you committed in writing to an equity split, a tweet is clearly not as strong as a legal contract, so in case where the relationship doesn’t work out, there is no additional paperwork needed.

But if you ripped-off the co-founder, the tweet gives them a (small) basis for a lawsuit. So it forces you to do the right thing. It’s a good trade-off, fair for both sides, without getting all lawyerly.

After the one month, if everyone is happy and super-excited about the startup, incorporate. That will make the tweet official. That’s it!

PS: did I mention that if you construe this post as legal advice, you deserve the mess you’ll get into? Of course you should talk to a real lawyer. Just do your own research as well.

I’ll happily take comments from lawyers and others about whether this approach is sound or not.

At an iPhone developer Meetup a few nights ago, an iPhone developer asked me a key question: “how much equity in my project should I offer to the technical writer that I need to finish my app?”

His gut feeling was that as the main developer, he of course should keep most of the revenue.

There are two ways to approach this question. You should use both. If they lead you to similar numbers, you have your answer. If not, something is wrong and you need to understand why before you proceed with a revenue sharing deal.

Be Realistic About Who Needs Who

Everyone tends to have a high opinion of their work. That’s a problem when trying to reach a fair deal.

As a developer, you know how tough it is to write good code. To you, English writing doesn’t seem like a big deal – although you are not willing to do it yourself.

Well, the writer on the other side thinks the same way. It all goes down to negotiations and who can walk away from the deal.

Ask yourself this question: if the writer was to quit when the first version of the app is out, would it be a problem or not? Or will you need them to stay around and improve the product?

This is the key question that tells you the difference between a co-founder and a contractor.

Obviously co-founders deserve a significant amount of shares. Contractors want to be paid, but they can be replaced.

Be realistic about the fact that you indeed need a good writer. Your app’s quality may depend on it.

At the car dealership, you must be willing to walk out three times to get a good deal. Equity negotiations work the same way, except that once you reach a deal, you need to actually spend time with the other person. So you can’t burn bridges.

Discounted Value of Future Revenue

The second exercise is to look at the potential income and check whether it’s in line with compensation. If the writer is expected to put about a month of work full-time and you offer 1% of an app that may make $20,000, that’s a total compensation of $200 for the month. It just doesn’t compute.

No need to go back to business school and run a fancy analysis about discounted values and risk factors, but it’s clear that anyone who works for revenue share is taking a risk. So even the $200 above is a best case scenario.

In reality, there is a possibility that the app never makes it to the market, so the writer makes $0. The app could do ok and generate a few thousand dollars. The writers makes less than $20 (the price of a dinner).

The Number

So what is the right number? In the case of that developer, the amount of work expected of the writer was significant (a month, probably more with updates, changes and what-not). The job was more that of a co-founder, not a hired gun. My recommendation: anywhere from 25% to 40%.

What do you think? Is that the right number? Is too much or too little?

TechCrunch’s coverage of our new Fair Blogs has generated quite a bit of discussion on the best way to compensate a bloggers network.

My Page, My Ads

A popular view is that each blogger should be paid for the pages they write. Essentially, if you wrote the entry, the ads on that page are yours. It makes sense and is easy to understand. If you write great content, you are immediately rewarded.

This approach has a drawback: there is no feeling of being on the same team. You are not building a destination site together. You could almost wonder why bloggers would team up this way, since for all practical purposes, it looks like a collection of separate blogs.

Who Pays The Editors?

Taking your blog to the next level requires more than individual bloggers. Look at TechCrunch’s staff. Not everyone is a writer, but I’m sure that each is needed for a reason.

For instance, the role of a good editor is critical: shortening blog posts, forcing authors to go to the point quickly, removing spelling and grammatical mistakes, etc. Such functions are performed for all blog entries and increase the value of the site as a whole.

Hybrid Approach

Some revenue sharing of the entire site’s content thus becomes necessary. You know that at FairSoftware we are biased toward equity-based revenue sharing. If you think of your blog as a company, then it makes sense that you pay the writers from the pool of money that is coming in.

It’s smart, so of course you will pay the best writers more. But you recognize that there is some human side to the decision of who gets what. Done well, it can be extremely motivating and fair. Left to machines and pageview counters, you run the risk of people gaming the system.

Do you think a hybrid approach would be in order, a compromise between getting paid for your pages but also receiving some share of what others on the same site are generating?