This is a common and interesting situation, so here are my thoughts.
1) If he wants to be bought out in cash & wants to stay on as an advisor (won't be doing product updates, coding tweaks, etc.), I'd look at sales trajectory of the app he worked on overtime. If it's trending down, it's okay to make an assumption that it will continue to do so, at some reasonable rate, an calculate the present value of projected future earnings / 2, assuming that you won't make any product changes. There is nothing wrong with keeping him on -on a rev share basis, but be sure you know what you are getting.
If he doesn't want a cash up-front buyout and just wants nothing to do with the app anymore, just keep his 50% share alive up until a max of the agreed upon future earnings of the app, as is.
However, if you are planning on keeping the app going, any agreement has to codify the terms of your relationship, contingent on accepting the buyout (consult an attorney). Who knows where things will go in the future and who else you will be bringing on-board.
If you are on good terms, coming up with a number shouldn't be a big deal. Especially, if he has a specific need for the money. If not, this might be the time to incorporate your venture, issue him some stock for contributions thus far and let him participate in whatever upside there may be.
thanks for the detailed reply! he does indeed want a cash payment for his side of the business.
quick question:
when projecting future earnings, what time period is fair to assume?
the business has been steadily chugging along, growing some months, shrinking some months. we both planned to invest more time into it, but have been busy. the idea is that if i own most of it, then i'll have more incentive to invest new features into it.
1) If he wants to be bought out in cash & wants to stay on as an advisor (won't be doing product updates, coding tweaks, etc.), I'd look at sales trajectory of the app he worked on overtime. If it's trending down, it's okay to make an assumption that it will continue to do so, at some reasonable rate, an calculate the present value of projected future earnings / 2, assuming that you won't make any product changes. There is nothing wrong with keeping him on -on a rev share basis, but be sure you know what you are getting.
If he doesn't want a cash up-front buyout and just wants nothing to do with the app anymore, just keep his 50% share alive up until a max of the agreed upon future earnings of the app, as is.
However, if you are planning on keeping the app going, any agreement has to codify the terms of your relationship, contingent on accepting the buyout (consult an attorney). Who knows where things will go in the future and who else you will be bringing on-board.
If you are on good terms, coming up with a number shouldn't be a big deal. Especially, if he has a specific need for the money. If not, this might be the time to incorporate your venture, issue him some stock for contributions thus far and let him participate in whatever upside there may be.
Good luck,