Is this a fair partnership proposal?


1

I am the technical founder of a software product, the product is finished with good inputs from at least 6 to be customers. My to be Sales partner who is already helping me from the past 4 weeks proposed me about a X-Y partnership and he will work full time on this project.
But however he is NOT ready to commit on any sales targets/milestones Or 'my ability to end partnership' in case he is NOT doing good. His argument is with these conditions, the working model would be like job and he doesn't want to get into any more jobs. Also he says since he is doing this full time without a salary, which is the risk he is taking and accordingly he should be compensated roughly 50-50 partnership in the near future. The valuation model he is using is the number of hours I spent building this product with my hourly rate plus my cash investment.

My worry is without these two conditions the model would be open ended without accountability.
Is this makes sense?

Additional information:
We both know the early sales takes a lot of effort to do and it is NOT fair to compensate that by just percentage. I am OK with offering equity but I want to make this conditional and looking for some feedback in these lines. –

Sales Co-Founder Equity Partnerships

asked Jun 8 '11 at 00:13
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User11074
39 points
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3 Answers


1

Why not just create a sales agreement and contract out the sales. So any customer he gets he receives a commission of 50 to 60%. Then if this is software as a service and there is residual payments perhaps offer him a % of that as well. I'd make that contingent on him continuing to make sales every x time period.

answered Jun 8 '11 at 02:09
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John Bogrand
2,210 points
  • We both know the early sales takes a lot of effort to do and it is NOT fair to compensate that by just percentage. I am OK with offering equity but I want to make this conditional and looking for some feedback in these lines. – User11074 9 years ago
  • Does the business make a profit at all then? If the cost of sales is greater than the revenue it's not ready. – Richardg 9 years ago

1

You can't have a partnership which can't be dissolved by the last two partners. That doesn't make sense, and is probably a legal impossibility where you are.

We can't tell you if the proposal is fair without knowing all about the business. The key is that you don't like it, and you don't actually need this guy. There are more good sales peoples than turn-key business opportunities, which is what you are currently holding.

Disclaimer: Don't rely on free advice from the internet. Please conduct your life as if you had never seen this.

answered Jun 8 '11 at 03:55
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Marcin
526 points

0

If you want to get a perspective on whether you think he is worth what he is asking, then check out Paul Graham's essay The Equity Equation .

I recently turned down a 50/50 offer from someone because I couldn't see how they were going to double the value of my company, and I don't even have a product ready. Conversely, I took on a sales director in my previous business when there was something to sell, and we were both happy with him taking 20% of the business. (NB I had known him for a long time and knew that he was going to substantially increase the value of the business, making the eventual pie so much bigger).

If you think you can work with this guy (crucial), then I would see whether you can find a more incremental model, something that builds up as your working relationship and your sales develop. That way the risk is minimised if things don't work out, but he still gets rewarded for business he generates.

Final comment echoing @Marcin - if in any doubt, don't do it. Taking on the wrong guy can waste an inordinate amount of time and money (I know, I've done it to my cost.)

Good luck!

answered Jun 8 '11 at 17:35
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Steve Wilkinson
2,744 points

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