Any advice on developer equity?

I was hired by a music school to develop a Rails app. It’s an online lesson journal to track student progress. The app was used in the school for several months and then we made it multi-tenant. Now we have several other schools as subscriber customers.

I have been the sole developer (and sysadmin, consultant, support, etc) on the app for almost two years.

The couple who own the music school are friends of mine and have funded the development themselves, paying me for a fixed number of hours per month. We’re all on great terms. They’re very excited to be involved in a software product, it’s a great diversification from their bricks-and-mortar music school, and I’ve been able to learn a lot about software development, and Ruby/Rails in particular, along the way.

The time has come to formalize the structure & ownership of the app. None of us are quite clear on how to proceed.

Does anyone have any experience of this?

Should I simply accept my regular payment as full compensation for the work done and not request any equity?

Does it make a difference that I contributed heavily to the planning and features of the app, far more than a work-for-hire developer would have done?

Does it make a difference that I’ve been working for substantially less than the market rate for a freelance Rails developer?

Or would it be normal for me to receive some amount of equity in return for my extra contributions? If so, how on earth would we figure the amount?

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I’d argue that the time for this was before you started working on the app, but that’s a moot point now.

Did you sign anything when you started working with them?

IANAL, but my guess is you have very little bargaining power from a legal perspective. They probably own everything you did outright, so any equity you receive is them doing a nice thing and sharing the product’s success with you, which it sounds like they’re willing to do.

I’d probably ask for something like 30-40% and see what happens.

Here’s a Quora thread that seems relevant:

@benorenstein you’re absolutely right - best time to settle this is upfront. Lesson learned for next time.

We don’t have anything in writing at all. I started as a simple developer ‘work for hire’ but soon became apparent that I would be doing all the technical stuff, from deciding and planning all the features to setting up infrastructure and services.

The Quora thread was very useful, thanks. I’m a lot better informed now. I found a few other interesting reads:

This is also interesting (but certainly not definitive) - an Equity Calculator:

The best way forward seems to be an honest conversation with them about it. We’re all equally naïve about all of this side of things so we’re educating each other along the way. Fingers crossed.