Evaluating initial contribution in a business startup


1

Here’s a business scenario involving two persons:

Person A:
- has business strategy and technology road map for a line of business in software
- has 4-5 customer prospects who are interested in his road map and what he may develop
- has skilled engineer contacts willing to come on board with him
- is working with a GPL licensed software out of which a product line can be created, but otherwise has no product to sell yet, and no money

Person B:
- has bean counting, administrative and facilities-management skills
- has money to invest
- has bought the IP assets of a dead company in the same line of software business as person A. No active work has been done on the IP for several years.
- has no road map for working with the IP he has bought, nor technology knowledge, ability to put together a team, or customer prospects

Prospective scenario:
- It is possible for A and B to come together to start a business, with perfect complementarity of what they bring to the table. The customer prospects, business strategy, tech road map and initial team that A can bring will work very well with (resumed development work on- and with) the IP that B has bought.
- A can be hired by B as the CTO-CSO, with at-market salary, stock options, benefits, etc.
- B has other options to invest his money elsewhere. However, in order to create a business out of the IP assets he has bought, he has no other option than to come together with A.

Question: How does one evaluate or monetize what A is bringing to the table to create the new business? Is it reasonable or advisable for A to create himself as a business, and sell his value to B (for part cash, part equity) before coming on board to execute on the new business? Or should he negotiate for some kind of co-founder compensation (again, with part cash, part equity)?

Thanks!
AS

Co-Founder Valuation

asked Jun 6 '12 at 18:45
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Aaron Smothers
56 points
  • How come the question makes B sound important, why not have another question about the possibility for A to find investor C and buy the IP (or similar) ? – Jontas 7 years ago
  • A cannot write code on his own? – Jeff O 7 years ago
  • Good third possibility raised by @Jontas. That's an option if the 'partnership' of A and B won't work. A can write code, but the first inclination is to work with B since A is familiar with the IP that B has bought, having contributed to it at his previous company. Time to market and revenue will be quicker if A works with the revived old software rather than with newly developed software. – Aaron Smothers 7 years ago

1 Answer


1

To me, the best course of action for A would be to create the business with B as a co-founder but with a smaller share. Then sell himself to the company (let's call it company AB) through another company A started with his engineer contacts.

This would give A a part of the profit of company AB (in terms of shares) and would allow him to work freely under his own new company with the other engineers (for cash).

At the same time, B would remain the main shareholder and has a little more flexibility to shape the company to his needs.

These are just my thoughts though, I'm sure there will be others who don't feel the same way.

answered Jun 6 '12 at 21:19
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Mike
140 points

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