

Ask HN: Entering into a partnership with strangers. - willmacdonald

I have been asked to join a 'venture' by 2 guys, only one who I know vaguely.<p>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.<p>Apparently, it is popular with the clients they show it too, but they can't really increase the sales volume without some help.<p>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.<p>The proposal they offered is to give me 25% of the business, in exchange for developing the online bit of the system.<p>In essence I am keen to go for this opportunity.<p>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.<p>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)<p>Does any one have a good contract for this sort of arrangement? Is there a correct term for this?<p>I am operating through a Limited company in the UK.
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gfavvas
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.

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noahc
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.

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gallerytungsten
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.

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Codhisattva
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!

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iradik
Don't go into business with people you don't trust.

In my experience, it never goes well.

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Mz
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.

