Web Development Company - Business Questions

Mister Man

I wasn't sure if I should post the tread here, or on the Tech forum. Mods, feel free to move if needed.
I've no idea about business start ups, whats needed, or anything like that. I've been quite happy doing my freelancer work the past few years, until this year.

Story time!
I'll try keep this part as short as possible.
Me and a good friend had an idea for a little business locally. Began planning to setup a PC/Phone repair shop, with me also doing web development on the side. Happy days.
Idea faded, as we had no money. Neither of us mentioned it.
Other day (2-3 weeks ago) he rang me up, said his uncle would fund our business. Great stuff, arranged a meeting with this guy.
Day came, meet up with my buddy, he tells me he can't come. Fair enough, go for a pint and get some details on what the plan is anyway.
Tells me that he doesn't want to do the repair side anymore, just website development. (He doesn't know any coding stuff at all) Ask what he plans on doing - "I'll be the middle man"
Ask about the shop in town idea, and suggest an office instead. Tells me his uncle wouldn't fund an office, and I can do the work from home.
Ask if I'll be the only one doing any work. Straight out "yeah, for now anyway"
Question the need for his uncle at all. (Who will own 100% of the company until his the amount funded is returned) - Gave a decent reason, he works for the bank. Something to do with start-up companies. So good flow of clients.
Ask about how money is split between us three. All money goes into the company account for a year. Question this, and he tells me "it's to build the value of the company.
Ask how it will be decided when it comes to it. Paid in shares. His example was - "You and me might get, lets say 20%. We can then take 20% of whats in the account"
Ask how he'll be entitled to anything, let alone the same stake if he does nothing, and how his uncle is the owner if he doesn't fund anything. No answer.

I hope that wasn't too long winded. Tried my best too keep it as short as possible.

Now my questions:
1) Does this seem like complete BS to anyone else?
2) I questioned the "Building the value of the company" thing. Considering it's just a Website Development company, is this even needed? Is this method I've mentioned above even a thing?
3) a)Anyone any ideas on how the shares SHOULD be split in a situation like this?
b)Shouldn't I be entitled at this point to the majority of the company, considering I'm the one doing the actual work. Granted, his uncle would be providing a good few clients.
4) Could I just bypass him and his uncle, and talk to a different bank directly, and see if I could offer my services to new business that have started? Or am I in fairy tale land?
5) Should I just shut the idea down, and get on with my life?

Any and all help is appreciated. As you can probably tell, I'm clueless here.

Graham

Let me re-word that for you to see if it still sounds tempting:
You have been offered a job with a new company.
There will be no pay for the first year.
At the end of the first year you may get 20% of whatever the company has remaining in profit.

Questions:
What is the uncle funding if there is no office, no overheads and no staff costs?
What's to stop the uncle deciding to immediately withdraw 80%/90%/100% of the companies income as it is generated?
What bank does the uncle work for that will allow him to operate/own another business using the bank customers as sales targets?

Duckjob

Hi OP,

I'd agree with previous poster - the line of your uncle bringing clients in via start-ups from the bank sounds like horsesh*t - spoofing, if you will, to make it sound like he'll be contributing something big and therefore deserves a lions share of the pie.

So, from what you've said, in 1 yrs time,

- You'll be busting your gut doing all the tech stuff, managing projects, managing the projects etc. - You'll get 20%.

- Your buddy will be doing a bit of schmoozing and sales, or trying to, as your uncle's pipeline of clients turnings out to be horsesh*t. Is your buddy qualified? Good contacts/connections? Can you realistically see him bringing in business? Because without a pipeline of sales coming in you don't have any business. - He'll get 20%

- Your uncle will be doing ???? Nothing? And he'll get 60%.

Sounds like a banker alright.

mneylon

Web development companies aren't "unique" and the good ones have taken years to build up reputation and a customer base.

20% of nothing is .. nothing

How are you meant to live during this 1st year?

TonyStark

What's to stop you starting up by yourself without these two?

I would be inclined to switch it back on them. What exactly are they bringing to the table on this one? Have they lined up a bread and butter client or is their aim simply work you to the bone over promising on contracts that arent worth anything.

I would be a little suspicious of the uncle working in the bank whose jobs i to help start ups? Unless he has a capital investment in the business I don't see any reason why he should be in on the deal. I would think for a business like a web development company there should be a considerable amount there to cover incidentals. eq. equipment, software licenses, light and heat, travel. If he is not willing to foot the bill for stuff like that it shows a wanting in his commitment level.

My inclination would to offer them your services on a contract basis over the course of the year on the basis that you need to make a living. Puts the ball back into their court in terms of client acquisition. If there are clients and the work is rolling in then it's a win win situation for all.

Mister Man

Thank you all for the helpful replies!
I may be wrong re: working in the bank. I'm not 100% sure about the link. I will quiz him on that later today or tomorrow.

Graham wrote: »

Questions:
What is the uncle funding if there is no office, no overheads and no staff costs?
What's to stop the uncle deciding to immediately withdraw 80%/90%/100% of the companies income as it is generated?
What bank does the uncle work for that will allow him to operate/own another business using the bank customers as sales targets?

I would assume basic start up costs. Company name registration, decent hosting package, domain name. Could see it being all done with 200 quid. I asked what he was funding, and was told "Everything" but when I asked if it includes an office, I was told no. He did say he'd cover the price of a new laptop. Say I went with a MBP retina. 1800 quid. He would have put in a total of 2000€ - If the bank link with the bank start-up section is true, I could see that being made back very quickly.

Apparently, nothing is stopping anyone from withdrawing money from the account. I was told "it's what all companies do at start-up." Personally, I thought the "building value" thing was a loads of ****e. I've never heard anyone do it before. (Granted, I'm by no means up to scratch on company start-ups

I've actually forgotten which he said. I think he said Ulster Bank? I may be wrong. As I said though, the link with the bank may be different. I'll have to ask about it.

Duckjob wrote: »

- Your buddy will be doing a bit of schmoozing and sales, or trying to, as your uncle's pipeline of clients turnings out to be horsesh*t. Is your buddy qualified? Good contacts/connections? Can you realistically see him bringing in business? Because without a pipeline of sales coming in you don't have any business. - He'll get 20%

- Your uncle will be doing ???? Nothing? And he'll get 60%.

Funny you should add that actually! I actually asked him if he plans on going to meetings and finalizing sales and what not. Of course, he did jump on that, and agreed fully. I more a less told him that was a loads of bollocks, considering he wouldn't be able to talk about the tech side, and surely his uncle would be talking business, rather then him. He kinda shrugged and said, he'll find something to do. I just let it pass.
The % he used was only an example, so it may not work out like that. (I should hope not anyway, as I said, I would definitely be entitled to the majority all things considered.)

Blacknight wrote: »

Web development companies aren't "unique" and the good ones have taken years to build up reputation and a customer base.

20% of nothing is .. nothing

How are you meant to live during this 1st year?

I agree fully. Loads of website development companies out there. Although, I could still see quite a few local sales available. Even still, the link with the bank is were I would be looking at the flow of clients coming from. Without the link, if it does turn out to be a loads of hot-air, I would drop any interest at all, as I could see not much profit to be made between three people, with only one doing the work.

I have enough to get by, if needs be, if I could see the light at the end of the tunnel. That being, I wasn't a part of a company were I do all the work, for the same stake as someone who does nothing, and less then someone who does just as little.

TonyStark wrote: »

What's to stop you starting up by yourself without these two?

I would be inclined to switch it back on them. What exactly are they bringing to the table on this one? Have they lined up a bread and butter client or is their aim simply work you to the bone over promising on contracts that arent worth anything.

I would be a little suspicious of the uncle working in the bank whose jobs i to help start ups? Unless he has a capital investment in the business I don't see any reason why he should be in on the deal. I would think for a business like a web development company there should be a considerable amount there to cover incidentals. eq. equipment, software licenses, light and heat, travel. If he is not willing to foot the bill for stuff like that it shows a wanting in his commitment level.

My inclination would to offer them your services on a contract basis over the course of the year on the basis that you need to make a living. Puts the ball back into their court in terms of client acquisition. If there are clients and the work is rolling in then it's a win win situation for all.

Who better to take advice from them Mr. Stark himself :P
Nothing is stopping me. My problem if I was to start-up a fully fledged business is clients would dry up, and I could see myself with no work. I would get my turn clients that I've worked for in the past, but I've always found it hard to keep a steady flow of work going. Even after 4 odd years of freelancing.
I've already flipped it onto them (Well rather, my buddy) and asked flap out what they'll be doing. He had no answer for himself, but he was adamant that his uncle was funding and proving clients.
Thats a good idea actually. I think it's worth testing his commitment to it. We're meant to meet with him this week. If that does happen, I'll do just that.
I might just do that, if the link with the bank is a little dodgy. I'll see what he has to say for himself.

Again, thanks for all the replies lads! All greatly appreciated.

EIREHotspur

I think I know your friend....hate to be indiscreet here on Boards but his name is Walter Mitty isn't it?

Did you have this conversation before, during or after quiet a few drinks?

I have to say it is the greatest pile of horse manure I have heard in a long time.

Once knew a guy who talked like that and he was also a spoofer....I done him a packaging design for a business that went belly up after first year...you would be best to stay well clear of this chap and his uncle regarding business.

Your are either a good friend or a very patient guy.

Mister Man

EIREHotspur wrote: »

I think I know your friend....hate to be indiscreet here on Boards but his name is Walter Mitty isn't it?

Did you have this conversation before, during or after quiet a few drinks?

Afraid not. I've never heard of that name before. Although he sounds like someone to keep an eye out for if you're mentioning him! :O
Before was the main time we would have a chat about it. I believe I would one, and he wouldn't drinking any time I've method a pint. Neither of us are too big into the drink.

Trojan

Mister Man wrote: »

"it's what all companies do at start-up."

Bullsh!t. Run, do not walk, away from this deal. It has red flags all over it.

professore

You say - "sounds like a good deal - after my €50K salary a 20% share of the profits sounds very reasonable" - QED. You are working all the time so the company should pay you a salary.