Ask HN: Entering into a partnership with strangers.
6 comments
I would be very careful with entering into a partnership with people you don't know. Would you marry someone you know "vaguely" or not at all?
I'd try to structure a trial period where you get to work with the other founders for a predetermined period of time.
If you do chose to continue, make sure you're protected. i.e. who owns the software you're developing? You don't want to develop it and then have them fire you and keep your shares, for example.
You should also build vesting into your shares. 4 year vesting is common, so that if you leave after 1 year you will still have 1/4 of your equity.
I'd try to structure a trial period where you get to work with the other founders for a predetermined period of time.
If you do chose to continue, make sure you're protected. i.e. who owns the software you're developing? You don't want to develop it and then have them fire you and keep your shares, for example.
You should also build vesting into your shares. 4 year vesting is common, so that if you leave after 1 year you will still have 1/4 of your equity.
The short answer to all questions is "What does the contract say?"
>If the business is sold, will I get 25% of the sale price
Probably not. Back of the envelope says you'll get about 1/3 of 30%.
> What guarantees are there that the guy doing the sales will work hard at it
Look into vesting and the various forms it can take. Even with that said, none really. If you're worried about this negotiate in the contract protections.
>Who/how are decisions made, do we all need to agree
Anything can be made contractual. Having 3 people agree may be impossible. Having 2 people agree maybe unfair. Plan accordingly.
>Should the software exist only on my server
This is a great protection from them stealing it. Of course, you might have legal recourse if they do, but why risk it?
>What costs can be off set against the company
I think you're talking taxation, as in write offs. Talk to an accountant. If you're asking about what can the company pay you for? Whatever the contract says.
>Can I claim extra costs for hosting on my server
Claim -- On your taxes or what? Can you bill them for the extra costs to your server? Yes, put that in the contract.
> I'm concerned that after months of development they may decide to cancel the project because of other commitments (We all have other work going on)
This is another contractual issue. You can negotiate this however you want. What you want though is a balance between giving something up to get this and protection.
>If the business is sold, will I get 25% of the sale price
Probably not. Back of the envelope says you'll get about 1/3 of 30%.
> What guarantees are there that the guy doing the sales will work hard at it
Look into vesting and the various forms it can take. Even with that said, none really. If you're worried about this negotiate in the contract protections.
>Who/how are decisions made, do we all need to agree
Anything can be made contractual. Having 3 people agree may be impossible. Having 2 people agree maybe unfair. Plan accordingly.
>Should the software exist only on my server
This is a great protection from them stealing it. Of course, you might have legal recourse if they do, but why risk it?
>What costs can be off set against the company
I think you're talking taxation, as in write offs. Talk to an accountant. If you're asking about what can the company pay you for? Whatever the contract says.
>Can I claim extra costs for hosting on my server
Claim -- On your taxes or what? Can you bill them for the extra costs to your server? Yes, put that in the contract.
> I'm concerned that after months of development they may decide to cancel the project because of other commitments (We all have other work going on)
This is another contractual issue. You can negotiate this however you want. What you want though is a balance between giving something up to get this and protection.
Your questions indicate an extreme level of inexperience in business. Coupled with the fact that you don't know these people well, the likelihood of things going wrong seems high.
If they are offering you "25% of the business" you own 25% of the equity. As to whether that translates into an actual 25% share: maybe, maybe not. The details would be in the corporate governance document; and might include things like preferred payouts to investors, etc., which could leave you with nothing.
You need to get a lawyer, or at least someone who has considerably more business knowledge, in your corner.
Hint: "good contracts" are custom written, not pulled off a shelf.
If they are offering you "25% of the business" you own 25% of the equity. As to whether that translates into an actual 25% share: maybe, maybe not. The details would be in the corporate governance document; and might include things like preferred payouts to investors, etc., which could leave you with nothing.
You need to get a lawyer, or at least someone who has considerably more business knowledge, in your corner.
Hint: "good contracts" are custom written, not pulled off a shelf.
Good lawyers are hard to find and you surely need one. If you want to feel out your potential partners ask them if all three of you could meet with a lawyer of their choice (and expense). If they hesitate or refuse or make excuses then walk away and don't look back.
Honest people in this situation will gladly create a fair business ownership plan with a lawyer. It protects everyone involved including the folks you don't know. You need to know if these guys are honest.
Further, take your time to get to know the 2 guys better. Right now what's most important is "Can I work with these guys in the long run?". Business can be like a marriage - you could potentially be spending the majority of your time with these 2 guys if the business is successful and grows rapidly.
Also make sure the other partners can pull their weight. The majority of the company's value will rest on your shoulders (as the developer). So the other partners need to be as active as you are in their own expertise - sales, marketing, support, operations, financing, etc. Don't bring along someone "for the ride", make sure they all work as hard as you do.
So, that's a few thoughts from someone who's gone down this road a few times, for better or worse.
Good luck!
Honest people in this situation will gladly create a fair business ownership plan with a lawyer. It protects everyone involved including the folks you don't know. You need to know if these guys are honest.
Further, take your time to get to know the 2 guys better. Right now what's most important is "Can I work with these guys in the long run?". Business can be like a marriage - you could potentially be spending the majority of your time with these 2 guys if the business is successful and grows rapidly.
Also make sure the other partners can pull their weight. The majority of the company's value will rest on your shoulders (as the developer). So the other partners need to be as active as you are in their own expertise - sales, marketing, support, operations, financing, etc. Don't bring along someone "for the ride", make sure they all work as hard as you do.
So, that's a few thoughts from someone who's gone down this road a few times, for better or worse.
Good luck!
Don't go into business with people you don't trust.
In my experience, it never goes well.
In my experience, it never goes well.
My knee jerk reaction:
This sounds like a situation where astrology or tarot cards would come in handy if you believe in that sort of thing. Which is to say that it sounds to me like you are operating so in the dark that "logic"/study/questions on HN probably can't do much for you.
Either go with your gut or don't. If you do, realize that it is tantamount to signing a contract in blood without reading it first. That can be an effective means to get things done and there have been times I've made those sorts of deals with "life", but just be very sure you are willing and able to pay the price before you do something like that. So I'm not saying there is never a place for it. I personally prefer to only sign unread contracts in blood when I am damn sure that what it gets me is worth the hell I am very likely about to be dragged through kicking and screaming every step of the way.
Best of luck.
This sounds like a situation where astrology or tarot cards would come in handy if you believe in that sort of thing. Which is to say that it sounds to me like you are operating so in the dark that "logic"/study/questions on HN probably can't do much for you.
Either go with your gut or don't. If you do, realize that it is tantamount to signing a contract in blood without reading it first. That can be an effective means to get things done and there have been times I've made those sorts of deals with "life", but just be very sure you are willing and able to pay the price before you do something like that. So I'm not saying there is never a place for it. I personally prefer to only sign unread contracts in blood when I am damn sure that what it gets me is worth the hell I am very likely about to be dragged through kicking and screaming every step of the way.
Best of luck.
They have developed a Business Intelligence system which they are selling to large companies, they pay a monthly fee. Currently it is a 'manual' system, ie Excel.
Apparently, it is popular with the clients they show it too, but they can't really increase the sales volume without some help.
They would like to convert it to an web app, which the clients will access. I don't know if any reason that it can't work on a technical level.
The proposal they offered is to give me 25% of the business, in exchange for developing the online bit of the system.
In essence I am keen to go for this opportunity.
I need to come up with a list of questions or items to be written into a contract, before we have a telephone interview, and wondered if any one here has been through anything similar.
My initial questions are: - If the business is sold, will I get 25% of the sale price - Does my 25% mean 25% of sales or profit - What guarantees are there that the guy doing the sales will work hard at it - Who/how are decisions made, do we all need to agree - Should the software exist only on my server - What costs can be off set against the company - Can I claim extra costs for hosting on my server - I'm concerned that after months of development they may decide to cancel the project because of other commitments (We all have other work going on)
Does any one have a good contract for this sort of arrangement? Is there a correct term for this?
I am operating through a Limited company in the UK.