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How to deal with "investors"


I´ve started to code an application driven by passion and an idea I thought was good. A year after starting I shared it with a very specific beta tester that succeeded using it in his very competitive field of work. Mine is a sports video analysis product and he won a Bronze Panamerican medal saying "half of it is yours". I also showed it to big players in several sports and a few ones asked to buy when it was at sub-alfa stages showing a lot of interest. So, to make it short, yesterday came a guy that knew about my work asking about partnering to create a firm to market this seriously. I really need some advice in what to be alert of. In the past I told someone to try to seek investors to do the selling while I coded and it was a nightmare I had to cut before all my prospects wanted to kill him (and me...).
How much is worth someone´s work 3 years from starting with a product? How have you dealt with this kind of situation?

Thank you very much,

Jon in Doubt
Monday, February 2, 2004

IMHO, there are only two palatable options regarding investors:
1) Get so much money up front you can walk away happy. You don't necessarily need to walk away at that point, but realize that it's something that could be forced upon you on Day Two. (Rent "The First $20 Is Always the Hardest" to see this in action)
2) Don't. Just keep working independently until you can sell things. "Selling things" involves transferring something of value in exchange for cash. Right now we're talking either copies of your software in a shrink-wrapped box, non-exclusive licenses to use the technology, or the rights to the code. (in increasing orders of dollar value)

As far as investors in the company, look back four years to see a thousand examples of people with no business sense but a lot of money taking the controls of companies and pointing their noses at the ground.

Best of luck,

PS - Tomorrow morning find a business lawyer, preferably one that has taken a software company public. You need to go have a heart-to-heart with him/her about all of this so they can explain your options and things that would be Bad Ideas.

Monday, February 2, 2004

That should be "The First $20 Million Is Always the Hardest"


Monday, February 2, 2004

Unless he is willing to throw a few million your way, I would tell him your not interested. If the software is such a winner and you have so much interest in people wanting it, why dont you take a bit of time off to get to to market and do the sales and marketing yourself. Investment seems like a good idea when you are stuggling to get it to the market because of lack of resources, but in 12 mths time you will regret giving half your company away for little reward.

Monday, February 2, 2004

Craig is right. This new person will not be adding anything useful unless he's putting real money, and lots of it, into your project.

Any fool can ring up and visit people and get brochures printed, while you do the hard work of developing the product.

If you take on this "partner" in the he proposes, you would find he thinks he's the boss before too long, because he's the one seeing people, and he has a lot more spare time than you.

In fact, before long, he would start to criticize you for not having the product finished.

Tell him to f off.

Monday, February 2, 2004

I second Philo's advice. See a business lawyer. It'll be worth every penny.

Unless this "investor" has a demonstrated, verifiable - and highly relevant - track record of success, I'd tell him to get the hell out. There's all kinds of vultures out there trying to figure out how to turn you into their personal cash cow. That's why you need a lawyer you can trust to be on your side to vet these people. And to hurt them if required.

Monday, February 2, 2004

>>>That should be "The First $20 Million Is Always the Hardest"

Damn, for a minute there I thought I was already over the hump.

Monday, February 2, 2004

Why does he need to see a business lawyer? There's no deal worth pursuing.

Tuesday, February 3, 2004

No, no, no, NO, NOOO.

Make friends with a good accountant and a good lawyer.

Don't sign anything.


Tuesday, February 3, 2004

Hi all:

I read this and smile, because in the past I´ve suffered the exact situation when you are pressured and cryed over to "finish the damm thing" by me first..."partner", while I also kept myself rushing following his steps trying to fix the b... he was making with the prospects. One of them eventually told me "why don´t you get rid of this guy so I can work with you sharing my sports knowledge so you can improve the product"? I dumped the "business mega hero", put more hours with the new guy and he won a medal using my app.

Regarding this new guy, the only one thing I can see they can bring in is work hours. I can´t do everything by myself to do the rest of the work right. So this person seems really interested and positions himself as the right tool to get this to market while "you are too busy with the guts of the stuff". I´d really like to have this kind of person in the team, but sure I´d need to define something like an entry payment, a share of this product mensurable in money, or something like that. It´s a person I like and respect, but I´m trying to avoid past errors not to get each of us to dislike we both soon.

I think I´d seek a consultant or someone that can tell me how to depict and communicate in a respectful way the fact that I´ve used 3x365x3 hours in this, plus the whole idea is mine, the field work testing and the hundreds of miles traveling with hockey teams are on my butt, so that should have a value, or not?


Jon in Doubt
Tuesday, February 3, 2004

Get some coffee and read about Ars Digita. Google for "eve andersson" and look for the history of the company. It won't help with your immediate problems, but may prove of use in time to come (when VCs are throwing $20m at you ;) and it makes for an interesting read.

Best of Luck.

Tuesday, February 3, 2004

"Why does he need to see a business lawyer? There's no deal worth pursuing."

When the deal is on the table is not the best time to start trying to build a relationship with your attorney.


Tuesday, February 3, 2004

First off the posters who claim there is nothing to sales and marketing and only development is a special talen are wrong to the point of stupidity.  There is no gentle way of saying it accurately.  This is a stupid idea.

The funny thing is how angry we get when business types assume the opposite- that business, sales, marketing is the key thing, the special talent, and all this development stuff will just kind of fall into place.

If you can get a talented person to handle the sales and marketing do it.  It sounds as if you are at that point.  I don't know if the guy you are talking to is the right guy, obviously.

As for how to deal him in, if he wants a piece of the business I would do one or both of two things.  First, he needs a vesting period.  He gets allocated a maximum number of shares but doesn't actually own any until he has been with the company for a year.  I would then have him vest fractionally more over, say, the next 3 or 4 years.

Two, since he is doing sales, you might want to have him vest faster as he actually closes sales.  You would need to agree on a formula.  An experienced business attorney should be able to help you out.  If he is afraid to give opinions, he is not the attorney for you.

Good luck.  It sounds like a fun project.

name withheld out of cowardice
Tuesday, February 3, 2004

Why not just pay him straight commission to sell it?

Tuesday, February 3, 2004

I agree with this previous post in that I´m not looking for someone to protect me from evil, I´m only trying to figure out how people that shares similar interest in a product´s success can manage to not end hating each other after a few years.
I´ve been there and I´ve done that, so I don´t want to repeat my mistakes again. One of the reasons for this is that I've started this just for fun and knowing that there was a real need and that a simple tool can solve it. As I proved the idea was right, I continued putting more hours on this but is not my main activity as I´m not a "real" programmer, and actually started from page one of an object programming language´s manual just to kick this off. So, this product is like my baby, and I always hope about making money with it but this is the first time that an outsider wants to get on the train with me, and it is very difficult to assign a monetary value for what I´ve done so far, as this product "is" me. In the other cases trying to sell this, the first one was a guy  that I thought could do the marketing. I asked him to do so and later dumped him because we are as far apart morally as you can imagine. The second one is my brave beta tester that has lots of contacts in his discipline and as he is very respected, other people wants what he uses just because he endorses it and keeps winning with it. The third one is a very famous trainer in another sport in my recently moved new country and city, and all I´ve done was picking the highest guy in city in the sport, phoned him and we are now customizing the app planning to co-market it as soon as I release a first version (I´m passionately following Joel´s advice cutting features). And lastly, this new guy is the first that came to me wanting to "make business with your product". We had a conversation, and he told me all the bright ideas he has about what can be done with it, and they doesn´t divert too much from what I´ve been thinking about before. So as I told him that I´m open to business, he started to make assumptions about how will we be working with the tool, but nothing about how will be the company organized first. So, as I´m trying to avoid known mistakes, I think I will ask him first to present me not a business plan about my product, but a plan about how to organize the company first. Will it sound too crazy if I tell him that what I´ve done has a value (unknown for me now) and that the soon to be formed company should take this value as a cost to assume?
About the last question posted: I´m not thinking about paying him commision because he came in wanting to create a company, is not about me asking him to sell something for me. I´m really very busy with my day work to seriously think about making an organization by myself, and that´s the main reason for me thinking about this proposal as workable.

Thank you all for your thoughts

Jon in Doubt
Tuesday, February 3, 2004

> the posters who claim there is nothing to sales and marketing and only development is a special talent are wrong to the point of stupidity.

That's not what I was saying. I was saying that the guy coming along thinking he is going to make a great contribution by "doing the marketing" when there is still an enormous amount of development to do, does not understand marketing or business.

Because of that, and because of the situation, his involvement would poison the enterprise and prove useless and stressful for the innovator.

Philo, you want to let go of the idea that seeing a lawyer is the answer to everything. Many lawyers would probably happily lead him through setting up an agreement, not having the experience to understand the arrangement is of no use to the innovator.

Wednesday, February 4, 2004


My apologies then.  I misunderstood.  Still I don't think you should be so down on sales and marketing types.  POssibly you have only dealt with people who sucked at it in the past.

The same with lawyers.  They aren't the answer to everything but this guy sounds like he has a product ready to go.  Once again most "business lawyers" suck.  If he can find a good one it will be worthwhile.

name withheld out of cowardice
Wednesday, February 4, 2004


Congratulations! It seems as if you have stumbled on to a good idea and have started to farm potential clients.

Having recently started a business plan for a new idea and being involved in other start-up ventures in the past, I am knee-deep in some of the questions you are asking yourself. I don't often give advice as there are likely far more qualified people in this forum to do so, but I will say a couple of things you may have heard before.

A) Begin with the End in mind.
What do you want to get out of this? Do you want to run a software company, cash out at some point or both? How much control are you willing to give up to do so? How big do you really want to get?

B) Assume you cannot do this alone. Build a TRUSTED team.
One piece of advice I've always believed is "Surround yourself with people smarter than you". You will at least need a CFO-type, a CTO-type, a Sales and Marketing type and a CEO-type as a mentor (one who has done this type of thing before), especially if you are after venture capital or Angel money.

Best of luck and keep us posted!

Thursday, February 5, 2004

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