Blog (equity) - Fred Wu's Tech

Startup, VC, and the Things I Learnt from Open-sourcing A 200+ Hour Client Project

ifredwu@gmail.com (Fred Wu) — Fri, 02 Sep 2011 12:49:00 +0000

A couple of days ago, a blog post titled “First employee of startup? You are probably getting screwed!” has made to the Hacker News front page and has spawned some great discussion and debate.

Since I had just been screwed recently, I thought it might be a good opportunity for me to share what I’ve learnt.

After my story got picked up by Hacker News and some other sites, I was contacted by my client. It was a very interesting and surreal experience which included keywords such as sue, settle, donation and disappearance. I am however going to spare you the details and instead, going to focus on the things I have learnt.

Be Strong, Be Emotionless

The biggest mistake I made, was being too emotional - not in the sense of being emotionally attached to the project, but in the sense of being emotionally attached to the opportunity.

Despite having detected some negative signs (which I will cover later), I willingly chose to continue on with the project because I wanted it to work out. I wanted to be involved early in a startup, I wanted to create a product that will have large impact, I wanted to have uncertainties and excitement, and I wanted to force myself to be busy.

I was blindsided because of my desires - even though deep in my heart, I already felt the failure approaching.

Be Informed Who You Are Dealing With

My client, who was referred to me by a strong and reputable PHP developer, is well educated, has an MBA, and has worked as a VP of a major US corporation before he decided to start his own startup.

But didn’t that just prove doing background-checking is useless, you might wonder? No. It is still a useful exercise - it proves the fact that, even legit clients can do dodgy things. Therefore you would want to pay more attention to picking up negative signs rather than being impressed by their reputation and/or portfolio.

Be Alert, Pick Up Tells

Just like playing poker, you need to stay alert and try to pick up tells. What are the tells? Well, in my client’s case:

He often emphasise the importance of communication, but he communicated poorly via emails.
He had unrealistic deadlines.
He was overly optimistic about the success of his startup.
He tried to lower my compensation expectation by using poor arguments.
He would call me up and talk for 20+ minutes when he was fully aware that I was at work (at my day job).
He was not being transparent and upfront about the VC side of things.

The list goes on.

No one is perfect, of course. A minor tell or two might just be considered quirks, but half a dozen or more - you run.

Be Informed About Market Rates

Before negotiating my rates, I had done quite a lot of research online - it provided me with context.

As a non-full time, principal developer and designer, my compensation package was approximately:

An hourly rate that is equivalent to 50% of my full time salary, or 30% of my contract/freelance rate.
2% of the company, after the seed round.

In return, a 20-40 hours per week sweat investment was expected from me. To me, it was not a bad deal since I don’t rely on the success of the startup in order to feed myself - I still have my day job.

One thing to note, is that the agreed package was actually a result of me being too emotionally invested in the opportunity. The offer from my client was originally:

An hourly rate that is equivalent to 90%+ of my full time salary, or 50% of my contract/freelance rate.
1% of the company, after the seed round.

See what I did there? I was emotional enough to trade immediate return for potential future return.

One of the best advices I got from more experienced people in this field is that, always treat equities (or employee options) as a bonus that is likely to never happen.

Be Cautious About the Information Received

Until written on paper and signed, any information you were told should be taken with a grain of salt. Often than not, people would say things to favour and/or support their cases.

The $2mil seed around valuation figure that was told (but was never proved) by my client has indeed influenced my decision of trading my hourly rate for equity.

Be Positive, No Matter What Happens

Positive thinking - one of the most powerful attitudes to ensure your happiness, is the key and morale of the story. You see, even though I went through a lot of stressful days and nights, I still consider the whole experience being positive.

Why? Because I learnt a lot. I learnt many things that I would not have learnt from working at my day job or freelancing. It gives me more confidence for my next startup adventure (whether it’s for someone else, or for myself).

Be Adventurous

Don’t be scared by other people’s experience. Steve Jobs once said something along the line of - they started Apple because they didn’t know any better.

I can comfortably say that, I am very much looking forward to my next adventure! :)

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Open-sourcing A 200+ Hour Project - The Story Behind It

ifredwu@gmail.com (Fred Wu) — Wed, 17 Aug 2011 11:55:00 +0000

Update: I have blogged about the things I have learnt from this.

Last night, after some long overdue frustration, I have open sourced Angel Nest - an online platform for connecting entrepreneurs and investors, similar to AngelList.

Shortly after I open sourced my work, the news got picked up by Hacker News and went onto its front page. (Update: I was just informed that the story was picked up by Reddit as well.) The Github repository has since been followed by 250+ people and forked by 60+ times - it became one of the Github’s daily trending repositories.

Since then I have received many warm regards from fellow developers and entrepreneurs. Thank you so much guys! I will reply to each one of you as soon as I have a chance. :)

From the Hacker News comments as well as some of the comments received privately, there were a few questions raised, and I hope to address some of them in this blog post.

Why didn’t you charge upfront or by milestone?

Well, because it wasn’t a simple freelance or contract job. I was approached and asked to become the then to-be-set-up company’s first employee (yes, an employee, not a technical co-founder). At the time of our work agreement negotiation, the company was still to be formed and the investors were still to be signed on - no term sheets or contracts have been signed by any of the investors.

As a result, I agreed to put the invoices on hold for a while (i.e. a couple of weeks, according to him), then I will start invoicing the company fortnightly.

Oh, and many of you think I am a freelancer. Well, yes and no, I freelance, but my income is mostly from my full time job (as a web developer, of course). :)

Still, why did you trust him so easily?

Before I agreed to work on the project, I did some background-checking of this so-called entrepreneur - everything seemed legit - he was a developer himself a few years ago; he worked as a VP in a major corporation in the States before committing himself to this project; and from the few Skype conversations we had, he seemed to understand how to keep a developer happy. As a matter of fact, he had stressed many times that he would pay the developers a fair deal in order to keep them happy.

And how could you have agreed to work for him without any contracts?

Being a person with goodwill, I agreed to work for him on this project - essentially as the principal developer. My contribution was supposed to be compensated by a low hourly rate + equity in the company - the figures were agreed both verbally and via written Email.

Ordinarily I value equity very little. However, the way he described the investment situation - the company being valued at $2M, with investment from several top VCs and angels in China - got me believed that the company had a very strong lineup of investors and a reasonably large sum of first round investment.

To this day I still do not know what the actual investment situation is. It seems to be a sensitive topic whenever I brought it up during our conversations.

Why didn’t you stop working sooner?

I wanted to be professional - I cared more about building an awesome product than receiving a fat cheque (not that the cheque will be fat anyway, given the low hourly rate).

He stressed many times that the project is very time sensitive and we needed to launch as soon as possible.

And in order to speed up the development progress, I even took two weeks off work (with many unpaid leave days) and worked on this project. Looking back, I lost not only the compensation I am entitled to, but also a fraction of the salary that puts food on my table.

Are you upset?

Actually, not really. As I said before, I care more about building fine products than receiving more money - just the fact that I worked on a real Rails 3.1 project is very fulfilling in itself. And the fact that I received so many warm regards and comments - I am :) rather than :(.

As for the non-paying client, well, this isn’t my first time, and I usually just choose to forget about them and move on. I have too many more important things to worry about than chasing after payments.

Can I donate?

I sincerely thank you for your offer, but no I do not need donation.

What about the intellectual property? Any NDA?

We have no contracts or any paper signed whatsoever, despite I requesting them repeatedly - hence why I could release the source code at my will.

Why release the source code in MIT?

Because I am a big fan of total freedom in open source. I do not like the GPL family of licenses. Having said that, I respect the opinion of other peoples’, so I dual licensed the source code under GPL as well.

But open-sourcing the system gives them access?

They (the entrepreneur himself, and another account who I suspect is the new developer) already have access to the Github repository. Their access was revoked just before I open sourced the work.

To be honest, I could not care less what they do with the source code. Just the fact that he chose to shaft me is a strong enough indication that he will not succeed.

Again, why open source now?

I would have waited a little longer if it wasn’t for the fact that his new developers don’t seem to know what they were doing. A while ago I received a bunch of broken test emails sent to my inbox - indicating that he’s already hired someone else to continue the development work. Last night, a bunch of test emails came through again - so that was when I decided enough is enough.

Is it wise for you to do this?

I don’t know, you decide! :) Is gifting the source code to someone who might find it useful a good thing? I sure hope so.

Are you looking for freelance work?

Nope. Not because I just got burned, but because I have my own adventures to pursue.

What about other work and/or startup opportunities?

You may find out by dropping me a line, all my contact details can be found on this blog. :)

I am interested, but who are you?

Scroll down to the bottom of the page and you will find my bio with a couple of links. :)

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