The balance on "sweat-equity" and the value of Intellectual Property is always a difficult mess. It shifts depending on the idea. How much development time will it require compared to how original an idea it is. If it's not an original idea, but is an excellent interface you then have to rate how much better the interface is.

Personally I am a developer who started his own company to sell his custom programmed software. I would not enter a partnership that was 75-25 unless the 75% owner was injecting plenty of capital to keep the venture going for awhile and was ready to pay me an good (not amazing) salary.

If this idea person truly feels the idea is that good, then paying you on the front end for the eventual benefits is worthwhile. You can even place performance metrics on your work to prove that you are "earning your keep".

As for the NDA, don't get offended. That is very standard. Sometimes people use it to look more important, but usually they are just worried about their idea. I would run it by someone who understands them to see if it is boiler-plate or if it has some scary amendments.

I personally think that ideas are important, but they take a backseat to execution. Very few companies end up doing exactly what they originally planned either because they realize there's a big problem with the original idea or they think up even better ideas once they get started. For this reason (and others that I won't get into), I think it's crazy for someone to want 75% of the company just for having an interesting idea.

If the "idea person" plans on contributing significantly to the company in some other way, maybe the 75% split makes sense, but that sounds unlikely from your description.

Also, this is kind of off topic, but here's a lesson I learned that relates to the NDA. An old boss of mine (who was a very successful entrepreneur) told me not to be protective of ideas. Entrepreneurs spend their entire careers trying to convince people to participate in their business (VCs, partners, early employees). If it's so hard to convince investors and co-founders to get involved, why in the world would you be afraid of someone stealing the idea? I'm not saying you should blame this person for asking for the NDA, but I think it's a silly formality this early in the company.

Ideas ARE important. That said, few or no ideas are worth a 75% / 25% split.

I consider myself an idea person, though I do development. (What does it mean to be "an idea person" if you do all the work, too? It means that you're above saturation for ideas, i.e., you have more than you can bring to fruition.) If I gave my unused iPhone app idea and design to someone for them to do all the implementation work on, assuming that person's implementation was competent, I'd consider my contribution worth about a third of the total revenue. Maybe a fourth of the total revenue if the programmer did a really bang-up job. And I have a VERY high opinion of the worth of my own ideas. :-)

OTOH, if he's also doing other stuff - say, he's handling all the marketing and procuring all the art resources you'll need and finding beta testers and giving you a great machine to develop on and regular feedback on what you've coded - then it might actually be worth it.

And if there's a major thought gap on that - i.e., it hasn't occurred to him that one of the two of you WILL need to handle marketing, graphical resources, etc. - run away as fast as you can!

+1 to "don't worry about the NDA." It's not an unusual thing to do. I might use one if I were running around telling people I didn't know that well about my ideas. (Then again, I might rely on other people being slower-moving than I am.)

Sadly, there is often little value to ideas. Not until someone implements them.

I have never been approached with an idea, with a requirement to sign an NDA first. That tells me that either they do not yet have a clear idea or they know their idea is not defensible in the marketplace.

It also tells me that they probably know you can implement the idea with relative success completely without them.

I am not a full-fledged programmer like you, I'm still more of an idea person. But, I know I have a lot to contribute to the startup process and am also picking up programming to complement the efforts of the core developer. That's how teams are formed.

So, unless they are willing to significantly fund the project, they are big names in the industry or they're family, I would say, don't tie yourself down with scraps.

Start-up success is already hard to come by... Don't stack the odds further with a partnership that is not balanced.

I posted your question as a blogpost on my startup blog. I hope you get more diverse views from there.

Ryan,Co-Founder, Budding CEOs

Everyone is missing the point here. Your co-worker isn't the idea guy, he's the executioner! He's the guy who is getting the ball rolling. He's the guy who approached you. He's the guy driving the implementation. Unless you position yourself as an equal or a co-founder or a driver, 25% is a lot to get for just coding his idea.

Its hard to assess the 75/25 split w/o knowing the other parts. Is he putting up money and paying your salary. In that case, this might be very fair. But if your only compensation is 25% of some future revenue, your risk is much higher. He'll need to convince you not only that is is a good idea, but that he is capable of promoting the application and driving revenue such that you feel you stand a good chance of being paid.

BTW, if its just the two of you, and you are both contributing basically sweat equity in equal amounts to the project, its probably 50/50 split - your technical ability to be able to deliver the product is probably at least as great a contribution as his ability to have an idea. Start there, and let him convince you that his network / domain expertise / marketing / etc. - ability to sell this are so valuable that you no longer feel like a 'chump', that you value his contribution to the partnership at greater than 50%.

Otherwise, just quote him an hourly rate, and estimate of project scope, and leave it there.

NDA should be standard practice these days, especially when you need to approach someone else to do the techno-lifting. Friendships are great but business is business.

Keep in mind that as a co-worker they might be trying to protect their current job as well, the more incentive to keep people from talking about the new moon-lighting business venture in front of the current boss the better.

That being said, calculating equity stake in a venture has nothing to do with what you think you deserve and everything to do with how much you think you should be paid as a return on your investment vs how much the venture may be worth in the future.

For example, lets assume your billable rate is $150/hr (too high for a startup venture to commit to for a developer IMO) and you think it will take 40 hours a week x 6 months, then you should be looking to get paid $150k(ish) (and we all know that moonlighting like this at 100% productivity for 6 months is almost impossible!).

Anyway, you should negotiate your equity cut based on a realistic evaluation of your coworkers business plan, market research and revenue projections. Lets assume you want to make this return on investment within 2 years, how much is he projecting this new software will earn?

If he's projecting $500k in revenue over two years, and you want $150k, then you should negotiate a 30% equity cut (150/500).

If you then consider what other roles have to be performed to get this project to that $500k in projected revenue; sales, marketing, finding investors, managing the company finances, etc., and consider what you're NOT being asked to perform... 30% may start to seem like a steal.

When you crunch the numbers you may find that this idea may not be worth getting involved with compared to the ROI of having a personal life and not working two full time jobs for 6 months, keep that in mind!