OT: Programming and business contracts

[MarkusJ_NZ]

Hi all, sorry for the OT post but I do value your feedback about this.

I have been approached by a successful four year old business to build
them a new piece of software which I originally quoted for to aid in
their current business.

Here is where it gets tricky, they want to start a new venture whereby
I provide the software and I get 10% of all royalties of sales and 10%
shares in the *new* company not the existing company.

The existing company gets to use the new software at no charge and
they retain the IP to the software.

Any comments about this more then welcome, but the company has been
successful in the past. They know the market well.

Thanks
Markus

 

[=?ISO-8859-1?Q?G=F6ran_Andersson?=]

Hi all, sorry for the OT post but I do value your feedback about this.

I have been approached by a successful four year old business to build
them a new piece of software which I originally quoted for to aid in
their current business.

Here is where it gets tricky, they want to start a new venture whereby
I provide the software and I get 10% of all royalties of sales and 10%
shares in the *new* company not the existing company.

The existing company gets to use the new software at no charge and
they retain the IP to the software.

Any comments about this more then welcome, but the company has been
successful in the past. They know the market well.

Thanks
Markus

If the company is successful, they should be able to pay properly for
the development.

A venture is not really a venture if they aren't risking anything. It's
of course very convenient for the company to start a project where you
are taking most of the risk and they make most of the profit.

If you are willing to take the risk, the terms seem reasonably fair,
though. Except that the IP of the software should of course belong to
the new company, not the existing company.

 

[Niels Ull]

Hi all, sorry for the OT post but I do value your feedback about this.

I have been approached by a successful four year old business to build
them a new piece of software which I originally quoted for to aid in
their current business.

Here is where it gets tricky, they want to start a new venture whereby
I provide the software and I get 10% of all royalties of sales and 10%
shares in the *new* company not the existing company.
The existing company gets to use the new software at no charge and
they retain the IP to the software.

Any comments about this more then welcome, but the company has been
successful in the past. They know the market well.

From you description, it is quite unclear what the value of the new company
is. It doesn't have IP. Does it have a business plan? A revenue stream? What
do they plan to invest in it? How will it be different from the parent company?

You could be getting 10% shares of nothing - but there's just no way to tell
from
the information provided.

 

[MarkusJ_NZ]

From you description, it is quite unclear what the value of the new company
is. It doesn't have IP. Does it have a business plan? A revenue stream? What
do they plan to invest in it? How will it be different from the parent company?

You could be getting 10% shares of nothing - but there's just no way to tell
from
the information provided.






- Show quoted text -

Hi, thanks for your help; I cannot give too much away but basically
the new company is in finance and the other team are bringing to the
table their reputation and client base. They will handle the sales,
generation of new clients whilst I provide the inital development of
the software.

Thanks again for any new info
Markus

 

[Chris Mullins [MVP - C#]]

Well, as you describe it:
- You end up writing 100% of the code, and getting a 10% share in the new
company.
- You don't get paid any money for writing the code.
- You get 10% on furture royalties (*if* it sells).

On the other hand, they:
- Get 90% of a new company for doing very little.
- Get 90% of the sales revenue for selling the product (*if* it sells).
- Get use the softare for free at their old company.

to be honest, it doesn't seem like too good a deal to me.

 

[Samuel R. Neff]

Sounds like a pretty bad deal to me. You should be getting a much
larger percentage--40-90% depending on what exactly they're bringing
to the table (graphic design, user input, contractually obligated
marketing money, dedicated sales, etc).

Sam

 

[Liz]

Hi all, sorry for the OT post but I do value your feedback about this.

I have been approached by a successful four year old business to build
them a new piece of software which I originally quoted for to aid in
their current business.

Here is where it gets tricky, they want to start a new venture whereby
I provide the software and I get 10% of all royalties of sales and 10%
shares in the *new* company not the existing company.

The existing company gets to use the new software at no charge and
they retain the IP to the software.

Any comments about this more then welcome, but the company has been
successful in the past. They know the market well.

this doesn't smell right; they ask for a software development quotation,
you provide it, and then they say, "well, no, we want this free for Business
A and we'll give you a 10% share of Company B" .. which has no track record;
if these guys and their Company B business are actually worth anything,
there isn't a chance they'd give you 10% of the business in perpetuity
(unless they're fools); the only people who do that are people with NO CASH
... and people with no cash don't tend to have the best prospects for success
..... there being some exceptions, of course

Anyway, you're in a much better position to evaluate the business, your own
time investment and the credibility of the principals; but, I wouldn't give
them the IP; consider a limited and non-exclusive license .. one which will
meet their business need without giving away the farm ... and I'd probably
tie the continuation of the license to some level of payment to you ...
like, if you don't get $50,000 within 12 months the license terminates (and
you don't care WHAT company the money comes from; I would make BOTH
companies obligors one way or the other: counter-parties, guarantors, etc);
this all goes in writing, preferably with the assistance of an attorney
experienced in IP licensing; btw, you have to be careful with termination
clauses because they can be voided in cases of bankruptcy, third party
beneficiary claims, and so on ... this is not as simple a game as it may
appear, at least not in the U.S. .... looks like you're from New Zealand?

I just don't think it's **EVER** a good idea to do business with someone who
has no skin in the game; get some of theirs in it and see if you can make a
deal

Liz

 

[MarkusJ_NZ]

this doesn't smell right; they ask for a software development quotation,
you provide it, and then they say, "well, no, we want this free for Business
A and we'll give you a 10% share of Company B" .. which has no track record;
if these guys and their Company B business are actually worth anything,
there isn't a chance they'd give you 10% of the business in perpetuity
(unless they're fools); the only people who do that are people with NO CASH
.. and people with no cash don't tend to have the best prospects for success
.... there being some exceptions, of course

Anyway, you're in a much better position to evaluate the business, your own
time investment and the credibility of the principals; but, I wouldn't give
them the IP; consider a limited and non-exclusive license .. one which will
meet their business need without giving away the farm ... and I'd probably
tie the continuation of the license to some level of payment to you ...
like, if you don't get $50,000 within 12 months the license terminates (and
you don't care WHAT company the money comes from; I would make BOTH
companies obligors one way or the other: counter-parties, guarantors, etc);
this all goes in writing, preferably with the assistance of an attorney
experienced in IP licensing; btw, you have to be careful with termination
clauses because they can be voided in cases of bankruptcy, third party
beneficiary claims, and so on ... this is not as simple a game as it may
appear, at least not in the U.S. .... looks like you're from New Zealand?

I just don't think it's **EVER** a good idea to do business with someone who
has no skin in the game; get some of theirs in it and see if you can make a
deal

Liz

Thanks everyone for your help
Regards
Markus