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| | Equity/ Rev Sharing for Startup... Help | | 3 points by ashleys on July 24, 2010 | hide | past | favorite | 1 comment | | | Hello HN community, I need your advice. I am venturing into my own startup.I dont have a lot of money or the resources to develop the software I need to. I have come across a company that is willing to help me out. Here are the terms, tell me if this makes sense or if im giving to much out and being naive. The software will cost me 25k, im giving 20% equity and 2 years of Rev sharing at 30%. out of that 30% for RS, 30% is coming back to me for future software dev. Also the 25k is to be paid through the Rev Sharing deal, nothing coming out of my pocket. The reason behind the #s are, I dont have the money or the technical knowledge to do this. They were keen on getting into this business, they lowered the price of the software for me, also they will be my IT/Technical department, which I dont have to worry about. I dont minf giving them equity, but I need to know if 20% is too much, this will be vested over 4 years. Are these numbers ok or should I restructure it and lower equity? |
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Where are you getting your users?
Where are you getting your money?
Who will own the software? The IP?
Make a spreadsheet showing your projected income, followed by the amount of money ending up in each pocket. Do this as a cash-flow projection. Now divide your revenue figures by 10 and see what happens. Can you live with that?
Now compare with borrowing 25k at 10%pa. You end up with all the revenues, but you might not cover your loan. Where does that interest percentage break even with the deal you are getting?
What do you bring to this deal? Why should you get any money at all? Why not sell them the idea for $X and then move on to your next idea?
That's your homework - no doubt other HNers will have more to add.