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Company structure help request

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Rudy2

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I need some advice.

I cofounded a consulting company. I am the sales and back-office guy and my cofounder is delivering the consulting services. We're about 4 months in and have billed about $80k so far. I'm moonlighting and my cofounder is full-time on our company. 2 of our customers have brought us problems that we could solve by building a software application. There's totally a path to a business here as this software application could be sold to lots of different companies. However, we don't have the funds to cover the development costs. Our customers can fund the software development. However, IP ownership seems a bit tricky there... we were hired as consultants and technically anything we develop for them, they own. Both customers seem interested in the idea of building the software and reselling it to other companies - they want a piece of the action there. Our customers are not software savvy. My cofounder and I are. Anyone have any recommendations on how they would structure this? Or what they would pitch to these customers?
 

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Empires

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I need some advice.

I cofounded a consulting company. I am the sales and back-office guy and my cofounder is delivering the consulting services. We're about 4 months in and have billed about $80k so far. I'm moonlighting and my cofounder is full-time on our company. 2 of our customers have brought us problems that we could solve by building a software application. There's totally a path to a business here as this software application could be sold to lots of different companies. However, we don't have the funds to cover the development costs. Our customers can fund the software development. However, IP ownership seems a bit tricky there... we were hired as consultants and technically anything we develop for them, they own. Both customers seem interested in the idea of building the software and reselling it to other companies - they want a piece of the action there. Our customers are not software savvy. My cofounder and I are. Anyone have any recommendations on how they would structure this? Or what they would pitch to these customers?
If you are developers, what development costs are you accounting for other than your time?
 

Rabby

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A few things here on finance.

First, don't finish the thing until it's clear who owns what. Contracts are *part* of your financing. If it turns out that your customer needs to own everythibg and you guys are just fulfilling an order, fine. Just learn from that and do the next project on the basis of equity, using the ideas below.

Ideally, it would be lovely if your customers would pay for software development, and release the software to your oqwnership and control. But if not, maybe you need money more than they need you as developers, so you can fall back in an organized way and negotiate something that lets you *share* in the upside.

You need an agreement, a written and executed contract, that specifies ownership and profit interest. Ideally (assuming we failed to secure all rights), you still get all ownership, but they get *some* profit interest in exchange for their valuable contributions. You should try to secure the right to buy back that profit interest at (ideally) cost plus (for example) 5% interest, or perhaps market value as determined by a pre-set multiplier on sales or profit after some period of time.

You. Need. A. Lawyer. To review the contract. You write it, but pay someone to read it for hidden traps and ambiguity. It's a few hundred bucks to save you from ruin and much suffering.

Put in a drag along clause. In a worst case scenario, the best thing you can negotiate is partial ownership. Other owners can screw everything up because they get to 'say so.' To fix that, your contract has a clause specifying that if you negotiate a sale of the IP or the business, you can force them to sell along with you. That way, you don't have some bozos or their successors blocking you from a multi million dollar exit.
 

Ronak

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Have you looked into some of the no/low code options to get an MVP off the ground yourself? They've gotten very powerful recently and many business apps are run based on those environments.
 

Rudy2

New Contributor
I've Read UNSCRIPTED
Jul 12, 2017
9
11
18
United States
A few things here on finance.

First, don't finish the thing until it's clear who owns what. Contracts are *part* of your financing. If it turns out that your customer needs to own everythibg and you guys are just fulfilling an order, fine. Just learn from that and do the next project on the basis of equity, using the ideas below.

Ideally, it would be lovely if your customers would pay for software development, and release the software to your oqwnership and control. But if not, maybe you need money more than they need you as developers, so you can fall back in an organized way and negotiate something that lets you *share* in the upside.

You need an agreement, a written and executed contract, that specifies ownership and profit interest. Ideally (assuming we failed to secure all rights), you still get all ownership, but they get *some* profit interest in exchange for their valuable contributions. You should try to secure the right to buy back that profit interest at (ideally) cost plus (for example) 5% interest, or perhaps market value as determined by a pre-set multiplier on sales or profit after some period of time.

You. Need. A. Lawyer. To review the contract. You write it, but pay someone to read it for hidden traps and ambiguity. It's a few hundred bucks to save you from ruin and much suffering.

Put in a drag along clause. In a worst case scenario, the best thing you can negotiate is partial ownership. Other owners can screw everything up because they get to 'say so.' To fix that, your contract has a clause specifying that if you negotiate a sale of the IP or the business, you can force them to sell along with you. That way, you don't have some bozos or their successors blocking you from a multi million dollar exit.
Great advice! Thank you!
 

Rudy2

New Contributor
I've Read UNSCRIPTED
Jul 12, 2017
9
11
18
United States
Have you looked into some of the no/low code options to get an MVP off the ground yourself? They've gotten very powerful recently and many business apps are run based on those environments.
Not a bad idea... you got a favorite? I've played with bubble a little.
 

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