Asking a company to be a tech partner
I have been on a fruitless search for a technical partner to help me build a web startup. In the meantime, I went ahead and had the MVP built by an offshore company. They've done a pretty good job, are very responsive, and I'm pretty happy with them.
Since my luck with finding a technical person still hasn't turned around, I would like to enter a partnership agreement with the offshore company.
I cannot offer any more funds but I would like to offer them equity. Also, I will continue my search to find a technical co-founder so I would like to take that into consideration as well when deciding upon the terms.
Since I will be approaching the offshore firm with this idea, I was wondering if I could get the help of the people on this forum with regards to the type of terms I should be thinking about.
Thanks,
LZ
Outsourcing Negotiation Technical Partnership Agreements
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Why do you think it has been hard to find a technical partner? – Steve Jones 13 years ago
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Good question Steve. Li can you provide more details; if you're thinking about going for funding in the future, this is a serious decision. – Kelly Cooper 13 years ago
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Not the right question. Right question is: Should I give a company in another country a percentage of my company to try and get them to support and enhance my MVP for free? Answer: No. The company is not going to be your CTO when you're trying to get funding. Steve is right. Why have you been having trouble finding a technical cofounder? Are you offering 3% equity with $0 revenue? Take your MVP, turn around your first iteration, prove value, and you will be able to find a CTO for reasonable equity. But don't expect a second co founder to take 5 - 15% just because "it we my idea". – Umassthrower 13 years ago
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@Steve/Kelly. I think one of the reasons we've had a hard time is because our area doesn't have a lot of tech entrepreneurs and it's been hard to find hotspots where they meet frequently. We've been attending the ones that do, but obviously chemistry/timing all play a role. That's one of the reasons why we to create an agreement that allows us to be flexible so we can also add a technical person. – Li Zhou 13 years ago
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@Umassthrower- The MVP is all being done out of our own pockets and I am also learning to code in the meantime. We are taking our lack of technical expertise very seriously. We don't want to jump into bed out of desperation either. We have a good working relationship with this firm and in the absence of a technical person want to continue with them. What you are suggesting is our plan: To launch the MV,P have a few iterations and be able to show what we're doing and get technical folks excited. We are not planning on being stingy with equity either. – Li Zhou 13 years ago
2 Answers
You seem to have successfully navigated the treacherous waters of outsourcing. That's a strong point right there.
If I understand your question properly, you are basically running out of money, so you can't pay the offshore company anymore (at least not at the desired level). Since you are happy with the quality of their work, it's ok for you to switch to a more equity-based compensation. I have no idea if that would be ok for them, though. You need to ask. Usually, the whole point of offshore is to work for cash, equity is just too risky.
You may be able to lower the cash rate by offering equity, so keep an open mind. And just ask them. Be ready to be convincing when they ask you how likely it is that your project will one day generate profits. You are asking them to invest their resources into a highly risky venture.
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Thanks Alain, yes we know they have entered into previous agreements with other companies before. We have casually mentioned this idea and they've responded pretty well. I guess, I am more concerned about the type of terms to include because I would still like to find a technical co-founder and not spend all the equity on this firm. – Li Zhou 13 years ago
If you are a US (or other first world) company and you are going to have a substantial portion of your equity owned by a foreign entity be aware that this will have substantial tax and reporting implications.
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That's an excellent point that I had not even considered! Could you direct me to a good resource for this sort of information? – Li Zhou 13 years ago
