

Ask HN: How much equity in SaaS partnership? - noobaloob

I run a web development agency and recently was contracted to build an SaaS MVP for a client. The MVP has performed well and validates their idea. The client has a recurring sales stream that appears to have potential to scale up pending additional development work.<p>They are now interested in partnering with us to provide future development in exchange for part ownership and equity. I'm interested in the proposition, but have never been through this process before (neither has the client). I've talked to an attorney about contract details, but I'm not sure what a "fair" share of equity is.<p>They bring the idea, about 6 months spent validating and refining and designing it, the initial investment in the MVP, and a sales and marketing team. We bring everything on the tech side. At the moment, sales is done 100% over the phone by their team.<p>I'm leaning towards an arrangement where we start with a smaller piece of the pie and earn equity based on pre-determined milestones (product features).<p>At what percentage should I start the negotiation?
======
chrisbridgett
Not to sound like a douche, but without the full context of the SaaS business
and idea (or at least information on the target market and market size,
traction thus far, potential, resources available to the other company, etc),
I don't see how anyone here is going to be able to help you.

If this other company are a couple of guys that make some calls from their
bedroom that _are_ the 'sales/marketing' team, etc and the product is _yet
another_ CRM solution then you'll want a much larger percentage than if you're
dealing with a company that has a number of staff, millions of dollars, etc to
throw at this project, in which case you'd likely be proposing to take on a
much smaller stake.

More info needed. :-)

~~~
noobaloob
The market is huge (local businesses). They can sell (and deliver on their
pitch) at a higher price point (~$130/month per user). Potential is tough, but
it is reasonable to believe that, at the current rate, it could be generating
$1M+/yr in a year or two. As far as resources, they are a small company, but
have access to a sales force that is very inexpensive and can close on cold-
calls, both in the US and internationally.

I believe they are looking to partner because they either can't afford, or
don't want to pay upfront for development. They are non-technical for the most
part and need consulting/advice in that regard.

~~~
chrisbridgett
Okay, a few more questions:

What are the SaaS company's founder(s)'s backgrounds? Have they launched and
run a successful business before? Are you sure they really know what they're
doing?

It sounds like you don't really stand to lose anything - you can continue your
agency business whilst siphoning some of your teams hours off onto this
project. On the other hand, if this other company has the 'vision' and all
their needs catered for, except development, that leaves you in a somewhat
weaker position (in my opinion) as they could pick any decent agency to do
their development. Is their anything unique about your relationship/agency to
them, other than having developed the MVP?

I'm not going to be able to advise you on a starting percentage since I have
zero experience in negotiating these kinds of things, but I imagine this is
all information anyone here would need to even take a vague stab-in-the-dark
guess at a starting point for your negotiations.

------
chatmasta
How does equity work in SaaS? Does accounting just cut you a check for your
percent of the profits each quarter, in the form of a dividend? Or do you only
get a percent ownership that you may not see materialize until exit, in the
form of a capital gain?

------
jt2190

      > They bring the idea, about 6 months spent validating 
      > and refining and designing it, the initial investment 
      > in the MVP, and a sales and marketing team. 
      > We bring everything on the tech side. At the moment, 
      > sales is done 100% over the phone by their team.
    

Is there a particular reason that they aren't seeking investors, and then just
hiring your firm for the work they need, or hiring their own employees?

(edit: This seems like a good question to ask on
<http://answers.onstartups.com>)

~~~
noobaloob
I think it's easier. They already have the relationship with us, we are
familiar with the product, we fill in all the existing gaps, etc.

