Equity split for odd relationship
I am developing a SaaS platform by bootstrapping with sweat equity while covering the bills with a full time job. I am probably 2-3 months away from launching a viable public beta, and to this point I have done all of the business development, strategic planning, logistics, software engineering and design on my own.
Early on I identified an ideal brand to use with the service, which happened to be an empty parked page. The valuation of this domain is in the $40-70k range and I am not able to purchase it outright. I developed a relationship with the owner of the domain and we're both on the same page as to what we'd like to do with it.
We both bring great business networks to the table, so I'm reduced to comparing all my time and efforts creating this platform to his brand asset.
What is an advisable structuring for this situation?
New corp with equity split between our own companies? What split would be fair? Would the new corp acquire ownership of the brand asset? Of the software IP?
A domain lease/license agreement? What would be fair compensation to the domain owner?
Bootstrapped Equity Corporate Structure Intellectual Property Domain
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Honestly I wouldn't make up a relationship just because of a domain. Get another one. If the partner does really brings benefit to your business, you might consider a partnership. And a business network is too less benefit for me for equity split. – Christian 11 years ago
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The domain I'm interested in is really the best brand I can imagine for this service. I think it would invaluable for marketing and brand recognition. – Shaun 11 years ago
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What about a domain lease/license agreement? Off the top of my head maybe something like a 2 year exclusive lease with XX% profit sharing and options to renew...? Safe for the domain owner and my company still owns all data and IP and could re-brand in the worst case scenario. – Shaun 11 years ago
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Rebranding is pretty expensive and dangerous. A lot of your customers might not understand you are the same company, just with a new name. Why would you take that risk? You have already much risks as a startup. Again, besides the domain, what does the business partner bring on the table? – Christian 11 years ago
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He also brings his own network which is a bit larger than my own since he's a regular at industry conferences and travels extensively. Regardless of our partnership status I would want him as a strategic advisor. I agree with you regarding rebranding. That's why I want to tie down the best brand on the market when nobody else is bidding. The structuring and legalese is the tough part. – Shaun 11 years ago
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It's hard to advise. If he is willing to actually market the app then it might make sense. After all, I would not "lease" a domain buts prefer a real partnership if the other guy is willing to spend actual working time for the company. – Christian 11 years ago
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I agree to Christians first comment. Choose another domain. Not possible? There are great ways to play with the domainname (prefixes, suffixes etc.). Again: Choose another domain, then make your money, buy wanted domain later, be your company's owner. – Gottlieb Notschnabel 11 years ago
1 Answer
A straightforward way to handle this would be as follows:
Step 1
Figure out your founders share split, based on what each of you is bringing to the table (without the name). There's lots on here about that. Make sure you include four-year vesting in your shares if you're full time and ten-year vesting if you are part time (must be on here, or Google 'VentureLynx vesting' where I wrote on it).
Step 2
Figure out the value of your company for angel investment. There must be lots written on here already on valuing your startup. It's probably somewhere in the $200-800K range. Maybe closer to $200K.
Step 3
Pay for the brand with shares, which vest immediately.
How does this play out over time?
Initially, you 'own', e.g., $150K worth of shares vesting over 10 years (until you leave your day job and work full time when they vest over 4 years); the other person owns $50K worth of shares vesting over 10 years and $40-70K worth of vested shares. Don't focus on the headline number. Look at the magic of vesting:
- If you leave after one year part time, you keep $15K of shares, they keep $45-75K worth of shares, and it's their company with you owning a tiny piece
- If you stay two years full time and one year part time, you own $90K of shares, and they own $55-90K worth of shares. It's now your company.
Figure out the numbers that work for you/them. Which effectively comes down to: Who will do how much work in the business, and how much is the business worth without the name?
Your Answer
Bootstrapped Equity Corporate Structure Intellectual Property Domain
