Ask HN: Joining an Incubator. Concerned About 2 Items in The Contract. Advice?

[jalammar]

I've been developing my web startup for a while now. I applied to this government funded incubator in my country to be able to use their services. It's not a profitable entity and aims only to boost technology startups in the country.

I applied to join, and after several meetings, they sent us the agreement contract. Two items stood out the most to me in the contract:

1) The Incubatee shall, permit the Licensor to participate in agreed negotiations or discussions in respect of Incubatee's business activities or the financing thereof.

And

2) The Incubatee shall, after expiry or termination of Agreement or after graduation and for five (5) years thereafter, provide the Licensor on regular intervals agreed on, with written reports showing its business status and business progress, number of its employees, turnover, capital on value, total third party investment, copies of audited balance sheet and accounts and other similar matters. This obligation shall survive any expiry and any termination or discharge of the Agreement.

Now the agreement does not include funding, although they can make it easier to get once we sign (and want it). The services I'm after are mainly office space, simplification of governmental procedures (in a 3rd world country these can get tiring), access to legal advice, and the advice they can deliver on things like business model and marketing (although they don't seem particularly savvy about web startups).

It's enticing because these services are free, they only want this monitoring and other measures that would help the success of the venture. I just wanted to make sure that these do not encumber our startup, or make it unappealing to potential investors.

What do you guys think? Is this okay or not?

PS: I'm assuming they want the data to monitor the performance of the businesses they incubate. The agreement states that this information will be treated as confidential.

Any help would be appreciated.

[jacquesm]

My first guess on how to proceed would be to find some other parties that have already signed on to this program and to ask them what these tersm mean in practice.

regarding the first term:

That one seems to be the most serious, why they would want a seat at the table in negotiations is hard for me to understand. What I don't see is the teeth this contract has in case you do not live by its terms in the long run. What recourse do they have if you decide to negotiate a deal on your own ?

as to the second part:

It sounds like the reporting requirements are quite heavy for something that is basically government supported cheap business space.

Figure out how much it will cost you to comply with these requirements and how much you will save because of being in the program (and there might be fringe benefits).

Another avenue would be to take on some angel funding and use that to rent your office space but that will cost you equity and may not come with the same networking possibilities.

It reads like they want more statistics on what is going on inside the businesses they have a contract with, which is typical for government services, it is one of the coins with which you are expected to pay them back.

It is very well possible that you will be making these reports anyhow (for yourself or your co-founders or for some other funding entity), in that case the overhead would be minimal.

good luck!

[jlees → jacquesm]

It sounds like the reporting requirements are quite heavy for something that is basically government supported cheap business space.

I'd assumed they were heavy precisely because it was government supported cheap business space ;)

[andreyf]

As should be automatically mentioned whenever someone asks for legal advice - don't trust self-selecting smartasses on the internet, go talk to a lawyer.

[dctoedt → andreyf]

True insofar as it goes, but remember that many legal issues really boil down to a question of whether a particular _business_ risk is worth taking. Some of the most valuable legal training I've ever gotten was from being the one-lawyer law department of a 500-person software company -- for a while, I was regularly 'educated' by our business folks that sometimes you've just got to take the risk even though it might make "the lawyers" slightly nervous.

(Usual disclaimer: This isn't legal advice, consult a licensed attorney, YMMV, etc., etc.)

[dctoedt]

Suggestions:

A) Be sure the agreement includes a suitable confidentiality clause obligating the other side -- see http://www.ontechnologycontracts.com/clauses-for-contracts/c... for some sample clauses and commentary.

B) Consider adding a reasonableness qualifier -- e.g., in 1): "The Incubatee shall, permit the Licensor to participate to a reasonable extent in agreed negotiations or discussions in respect of Incubatee's business activities or the financing thereof."

C) In # 2, consider asking to add an upon-request qualifier, and limit the obligation to providing copies of what you already have. Example: "The Incubatee shall, after expiry or termination of Agreement or after graduation and for five (5) years thereafter, upon the Licensor's reasonable request, provide the Licensor [STRIKE: on regular intervals agreed on,] with copies of any written reports developed by the Incubatee showing its business status ...."

Usual disclaimer: This isn't legal advice, I'm not your lawyer, consult a licensed attorney, YMMV, etc., etc.

[jlees]

I signed something a little less intrusive than #2 - in practice it just meant updating them whenever something major changed with your company so they could put out a press release and get more incubatees. Nobody who'd ever been through the process had ever submitted accounts, a balance sheet, etc. Though I was getting money, it makes a bit less sense if you're not :/

I'd ask to get around #1 though, that could get nasty...

[entrepid]

With regard to negotiating this, i'd suggest to delete item (1) in a first turnaround of the draft agreement and, if they don't accept the deletion, to change it to some sort of right to information or observer's role at meetings.

With regard to item (2), water it down to non sensitive information. This should be acceptable as this seems to be, as jlees points out, only for statistical and promotional reasons.

[jalammar]

Thanks all, your input is very much appreciated.