Partnership models for becoming a co-founder and building somebody elses idea

techguy

Hello Folks,

I have been in talks with a guy (just met) about working with him to build his product idea and bring it to market. He came with the idea and claims to have network / great route to market. He requires a technical person to build the product and in turn is offering 50% equity to me in a newly formed company. He is the usual optimist with his idea and not full of hyperbole etc.

That said, in the initial stages I will take on all the risk due to development time etc. As is the case with most startups, it would probably be a long time before I get a dividend (also likely never).

People have floated the idea of me taking some kind of payment up front from him to build and then we may potentially co found together with an equity share for me. That is a simplistic view and appears like I want my cake and eat it. While the opposite is unfairly risk to me, where is the middle ground - what do people usually do in this kind of situation?

I am of the opinion that we can still proceed with a 50% split both ways but he makes some kind of payment to me (potentially at a discounted day rate) for the very early stage and speculative development. This way, it offsets risk (I get paid a bit, lowering my risk) and he parts with some cash.

Alternatively, he keeps 100% of business and IP and contracts me to build an MVP to roadshow and drum up interest etc. If things fly then I can come on board as a technical co-founder and we do a split of equity. How does that sound? I am conscious that it may sound like I want my cake and eat it too but that's not the case. I just don't want to take on all the risk for his baby.

P.S. It is also worth nothing that he has been floating this idea for the past two years on and off with people I think, fwiw.

Phoebas

Why do you say that you are taking on 'all the risk'?

Will he not be putting in any time in working on requirements, bringing this to market, looking for partners etc while you are doing the development?

It kinda sounds like you don't have a great deal of confidence in this having a good shot at success - that being the case, I wouldn't get involved.

techguy

Phoebas wrote: »

Why do you say that you are taking on 'all the risk'?

Will he not be putting in any time in working on requirements, bringing this to market, looking for partners etc while you are doing the development?

It kinda sounds like you don't have a great deal of confidence in this having a good shot at success - that being the case, I wouldn't get involved.

I see your point and your argument is valid in its simplistic form, but.. there is significant engineering work to build the product and get something working. I do agree the other person will have work to do but not to the same extent. Also, it is his project that he wishes to bring to market and must be willing to do some work.

It feels a bit unbalanced on my side for him to come along to me and expect me to build out his concept into a product with a view to getting to market and promise of a future payment. This is the general consensus among engineers and so I am wondering how can it be remedied and still proceed with a partnership later.

Tell me how

I'm presuming your efforts would effectively be full time work for a period?

How many hours does he reckon are required to develop a working model?
Do you agree with this assessment?
Has he put similar skin in the game, i.e. has he invested time which has prevented him earning, or will do so, to develop the idea?

If he has, it's more reasonable to ask you to do so, if not, less so.

Some people feel "having" the idea is of equal or greater value in start-ups. Or that doing the core physical work is the utmost importance. It isn't really either. It's a contribution of resources, (human or otherwise), hours of effort, contacts, know how, development of a realistic business plan (good one should take several days, if not weeks), ownership of IP and commitment (attitude) to the endeavor.

I suggest you agree a rate which will reflect your effort versus that of your potential partner for a particular timeframe to get the product to a desirable state. Should ye succeed in getting to generating revenue, you may be happy to return this upfront development fee to the business.

If you've only just met this potential partner, treat him like a job candidate. Review his previous experience, successes/failures, comparable efforts in what ye are discussing, references (formal or casual) and broader career experience. The fact that he is talking to others is relevant both in still needing to find someone and/or maybe him looking for the best fit for him. Did he ask you to sign an NDA before introducing you to the concept? Should he have? Could one of the other people already now be developing their solution aiming to cut him out?

Having a route to market may mean he thinks he knows how it might work, or that he actually has valid, proven, contacts who are willing to work with him.

You know yourself the likelihood of this ever generating income, that being said, you might still be willing to invest your time as much for the experience of trying to create a start up as anything else but proceed with eyes open.

I would also recommend drafting a contract to cover the early stage efforts and intent including milestones and timeframe if you're going to be putting significant time in to this.

14ned

techguy wrote: »

That said, in the initial stages I will take on all the risk due to development time etc. As is the case with most startups, it would probably be a long time before I get a dividend (also likely never).

I'd be running as quickly as possible away from such an arrangement.

Ideas are cheap. Software development is expensive. So you get a profusion of non-technical folk who want to con developers into writing software for a reduced cost.

It never works out. Even if you wrote the software, they'll resent you because you're the thing they're reselling, not the software you wrote. That gives you all the power. So they'll push you out as soon as they can, and you'll get screwed.

I'll tell you how to distinguish the con artists from the true entrepreneur: the true entrepreneur wants the software so badly that they'll teach themselves programming in order to write it themselves. They'll have some awful code prototype they've hacked together badly, and realising their inexperience, they'll be looking for a professional to rewrite it for them. Those are the people you should give a second look to.

Everybody else, ignore them as time wasters looking for cheap talent.

Once you do find someone who has coded up a prototype due to desperation, you'll need to figure out their trustworthiness, and just how far are they willing to personally sacrifice to get the startup going. By personally sacrifice, anything less than remortgaging their house and living out of their car means they aren't serious.

Us technical folk have accumulated the training that we don't have to make such extreme sacrifices. Those without that accumulated training have to make correspondingly more extreme sacrifices. That's the way of the world, we're scarce, they're plentiful.

Niall

Evil Phil

^^ What Niall said. I've only once every really seriously considered giving up a job and going into business with somebody. I didn't because he wouldn't let go of the software design process, and insisted on having control of development because of his prototype. It's a petty cause he had a really good idea.

<additional/>
Actually I did consider it another time, but that individual showed up drunk to the first 10AM meeting so I walked away.

techguy

Thanks guys, it is totally true I guess. I have already explained the cost of idea versus execution.

I am going forth with the arrangement as a technical consultant/contractor to build his MVP. He can roadshow, do whatever he likes with it and come back to me afterwards if he wishes to make a new proposal on the back of something tangible.

I note that he registered a trademark with IP office about 2 years ago and he has signalled he has been floating this / working on the idea since then. That is tell tale enough in my opinion.

And I do second the comment from somebody else earlier. I often come across an arrogance from "business people" who think they hold all the cards with their ideas and NDA and in this guys situation, "the key to the quick commercialisation of the product" 🤢

i71jskz5xu42pb

techguy wrote: »

I have been in talks with a guy (just met) about working with him to build his product idea and bring it to market. He came with the idea and claims to have network / great route to market. He requires a technical person to build the product and in turn is offering 50% equity to me in a newly formed company. He is the usual optimist with his idea and not full of hyperbole etc.

If I had:
- a great idea that I was confident in &
- a network & great route to market
I would not offer 50% of it to a technical partner I "just met". I'd move heaven and earth to raise money, get pre-orders, etc. so I could fund development myself with lower equity giveaway. Smells all wrong: either he's commercially naive or that 50% will never materialise.

techguy

Ian Broad Vent wrote: »

If I had:
- a great idea that I was confident in &
- a network & great route to market
I would not offer 50% of it to a technical partner I "just met". I'd move heaven and earth to raise money, get pre-orders, etc. so I could fund development myself with lower equity giveaway. Smells all wrong: either he's commercially naive or that 50% will never materialise.

I agree, I am going to ask him why he hasn't raised any funds, even seed? The more I think about it - 50% is a huge giveaway.

14ned

techguy wrote: »

And I do second the comment from somebody else earlier. I often come across an arrogance from "business people" who think they hold all the cards with their ideas and NDA and in this guys situation, "the key to the quick commercialisation of the product" 🤢

Well, good luck with it.

I don't want to underplay the importance of good business talent though. I haven't seen a cryptocurrency worth a penny in engineering terms yet, none of them are designed right. One of these days, once my kids are older, I reckon I could have a decent crack at the distributed ledger problem. It would likely consume two years of work full time, and require lots of very hard work from the business side of things to get it to gain traction unless one travels the well worn route of using the illegal economy to inflate the market for you. But it's no quick buck thing, you're talking years of hard work with highly uncertain payoffs, and a very high likelihood of just getting bought out by some big multinational - which is no bad thing in itself if the price is right.

Most of these guys with ideas and needing someone to code them up are just chancers though. If their idea is that great, they'll pay for someone to code it up, or if the required talent isn't available to them, they'll have a crack at coding it up themselves. That's the distinguisher. For startups, you absolutely need all founders to fully understand the technology, even if they're purely in sales. You can't fake it in sales if you want the startup to have any chance at all. Alas, 80-90% of those in sales do fake understanding the product, and thus have a rosy tinted view of how different it is when there isn't a big multinational standing behind your fakery.

Niall

Raging_Ninja

Having worked in a now failed startup (something like 75% fail within 5 years), one thing I recommend to you is only work for one where they have actually got real investors - that shows other people think they have potential enough to hand over money on the hope that it will succeed.

Another thing to look for is the amount of market research they have done - do they know that there are people who are willing to cough up cash to use the product, or is there a customer that the startup is working with who are willing to try the product.

14ned

Raging_Ninja wrote: »

Another thing to look for is the amount of market research they have done - do they know that there are people who are willing to cough up cash to use the product, or is there a customer that the startup is working with who are willing to try the product.

Great point. There is a huge difference between chancers with notions of "of course lots of people will buy this, it's common sense" vs "I have 1000 written feedback forms here saying that each of these will buy/subscribe/give us money".

In fact, just two days ago, a friend of mine rang me proposing a startup based on "some sort of website" which "lets people trade cryptocurrencies". I kinda pointed out those exist already. "Ah", but he says, "this one would be an Irish company which would trade with Irish people only!". To which I said, "you do realise right that the whole population of Ireland is a small town in global terms, and moreover, there are at least two Irish firms which already do that?" To which he said, "but we need to get onboard this thing now while it's still hot", to which I said "not until my children get a lot older".

Now, my friend was just being honest. We've known each other thirty five plus years. But most of the chancers will be the same, they've got notions about not losing out to a perceived set of others who are perceived as not losing out. That's completely the opposite to a well researched business plan where substantial groundwork and business leads have been put down and are ready for tapping if only someone could deliver a bit of software.

Perhaps though I am too conservative. I watched the Irish asset bubble inflate pre-2009 and deliberately held no assets. I watched many of my friends collapse, some of them ending up in divorce, a few in suicide. But those that stuck with it are now enjoying amazing returns. Equally, I'm thinking it's just another asset bubble, but the early stages of an asset bubble are the right time to get into a market. The really hard part is deciding when to get out before it collapses again.

Niall

Aswerty

About 2.5 years ago I co-founded a startup that ultimately failed after two years. My co-founder who originally had the idea asked me to get involved since he needed somebody technical on board to build the software. The timing was right and I'm pretty gungo-ho when it come to jumping head first into new projects. We agreed on a payment schedule for me to work on it about 20 hours a week for three months. My price was way below market rate but the idea was come the end of our initial agreed upon time frame we'd consider our options for partnering. A risk for both of us since neither of us was making a real commitment, but if either of us pulled out after the 12 weeks the other party would have felt like they got the short end of the stick. But that's an example of good risk management - you can't eradicate risk in startups, instead you try to divide it fairly.

Ultimately I found our arrangement very satisfactory, we ended up partnering up following the initial period. I was a minor partner in terms of equity in this arrangement. I had enough of a stake such that if we ever succeeded I'd do very well out of it. On the other hand my partner remained the driving force in the business. I think if you're not going to be an equal partner in pushing the business forward it's counterproductive to take a 50% share of that business. This is why I like a mix of equity and money on the table when it comes to implementing someone else's business idea. You can in a sense ride on somebody else's coat-tails to a certain degree while getting a certain amount of financial compensation.

ste

Fellow boardsies, I have a brilliant gold-star billion-dollar cutting-edge idea for a technology company and I need to connect with some top dev talent who can passionately get behind the idea and make it happen.

Is this the right thread?

What is the best method to connect dev talent with business/finance people?

Buford T Justice

ste wrote: »

Fellow boardsies, I have a brilliant gold-star billion-dollar cutting-edge idea for a technology company and I need to connect with some top dev talent who can passionately get behind the idea and make it happen.

Is this the right thread?

What is the best method to connect dev talent with business/finance people?

So you want free dev labour for your idea and all your offering is equity?

i71jskz5xu42pb

ste wrote: »

What is the best method to connect dev talent with business/finance people?

I've never attended but, assuming you're in Dubin, this event might be a place where you could meet people.

Evil Phil

Buford T Justice wrote: »

So you want free dev labour for your idea and all your offering is equity?

But it's block-chain big data machine learning analytics AI cloud as a service! Where do I sign up?

14ned

Evil Phil wrote: »

But it's block-chain big data machine learning analytics AI cloud as a service! Where do I sign up?

Heh. Do you know that due to my "knowledgeable" posts here, I've been personally approached by no less than eight people on either LinkedIn or via PM here trying to get me to attend various events around Dublin, or give advice?

Here's some advice to any of you wanting to get into distributed ledgers: you need to compete against and beat this: https://forum.getmonero.org/9/work-in-progress/86967/anonimal-s-kovri-full-time-development-funding-thread. That FR paid 5 XMR/hour a year ago. Current dollar price for an XMR is approx $250 each. So that's $1,250/hour if you didn't cash in your Monero at the time, or $10,000 per day. Meanwhile a senior C++ developer might get a day rate of €400/day in Dublin right now.

That's what you need to beat if you want to get into blockchain. Some people are pulling in 750k/year right now. They don't want to work for your startup for equity!

Niall

Buford T Justice

14ned wrote: »

Heh. Do you know that due to my "knowledgeable" posts here, I've been personally approached by no less than eight people on either LinkedIn or via PM here trying to get me to attend various events around Dublin, or give advice?

Here's some advice to any of you wanting to get into distributed ledgers: you need to compete against and beat this: https://forum.getmonero.org/9/work-in-progress/86967/anonimal-s-kovri-full-time-development-funding-thread. That FR paid 5 XMR/hour a year ago. Current dollar price for an XMR is approx $250 each. So that's $1,250/hour if you didn't cash in your Monero at the time, or $10,000 per day. Meanwhile a senior C++ developer might get a day rate of €400/day in Dublin right now.

That's what you need to beat if you want to get into blockchain. Some people are pulling in 750k/year right now. They don't want to work for your startup for equity!

Niall

You could tout yourself as a speaker for a fee, to supplement the quieter months when you're not contracting........:)

14ned

Buford T Justice wrote: »

You could tout yourself as a speaker for a fee, to supplement the quieter months when you're not contracting........:)

Not worth the hassle I'm afraid. I actively try to avoid getting noticed and thus pestered which is why I'm putting off speaking at the Dublin C++ users group. I will eventually, just as late as I can get away with, just before my Dublin contract ends and I can get back to Cork.

Niall