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Giving open-source contributors equity

by skylerwiernik on 12/1/24, 5:07 PM with 3 comments

Hi all,

I'm a startup founder working on developer tools for robotics. I'm still working out my business model, but my plan is to open source the core of the product and offer some SaaS addons and integration services to make a profit. I've been thinking about how to build an open-source community, and one idea I had was to give equity to contributors.

I could put out "bounties" worth a number of points for bug fixes or features. Each bounty is worth a number of points. All of the total points would convert to 5-10% of the company in an exit event, or once the company raises a certain size round. Employees/founders/investors would be exempt from earning points.

I see ways that this system could be abused (such as assigning a 1,000,000 point bounty to someone I want to give equity to right at the end) and I'm not sure how to write this in a way that contributors are guaranteed to get a fair share. What ever I do, I'll have some form of TOS written up by a lawyer.

What do you think? Would this make you more likely to contribute to an open-source project? Does this sound like a turn-off to future investors? Have any existing projects implemented something like this?

  • by toomuchtodo on 12/1/24, 5:25 PM

    I am not a founder, but I am a strong proponent of awarding value creation and aligning financial incentives. I commend you for even asking the question and spending the cycles to see if it is possible. I own private equity in several enterprises, and I do know (from the experience of negotiating, acquiring, etc) that the complexity of your cap table and the friendliness of those on it can have a direct impact on your ability to raise funding, navigate corporate decisions, and overall operate your business. Unfriendly investors can be extremely detrimental. If you can accomplish this in a way that does not encumber your ability to execute, I would be very intellectually curious to hear all about it. Talking to an attorney both familiar and experienced in securities and startups is mandatory.

    https://news.ycombinator.com/user?id=grellas might be someone to reach out to and buy an hour of their time to discuss (if they're still practicing).

  • by joey_spaztard on 12/4/24, 12:09 AM

    I am not a lawyer.

    I would be a little worried about the possibility that the SEC would consider this to be an investment contract, thus making it a security, thus requiring it to be registered with the SEC, which will be a huge hassle involving very expensive lawyers.

    I point to the case of LBRY inc, which issued tokens including rewarding people who made video content, spent a fortune fighting the SEC in court and went bankrupt.

    There is the issue that the company would be forbidden to issue equity to some people such as people in sanctioned countries.

  • by MilnerRoute on 12/1/24, 5:48 PM

    Interesting idea!

    Someone's also working on this problem from another angle. Bruce Perens wrote the original "open source" definition - and is now proposing a new license where large companies have to pay into a fund that supports open source contributors.

    https://postopen.org/