Need advice on how to structure a partnership


3

I have recently been approached by a person, who is both an investor and the project idea originator. We are talking about a tech start up, where I am the software developer, project manager, and everything else, and the other guy has some money to invest and near zero technical knowledge. In his own words, he won't be able to help much, except for his money and connections in high places (people who own high traffic sites and will be able to help promote us), so, basically, 97% of all work will be on me. I like the idea, see great potential, and am very interested in working on the project. The amount of money is not enough to quit my job and work full time at the new company, but enough to pay for contractors for tasks where my skills are lacking (graphic design, etc.), and then promote the product. I estimate 60-100K of capital available for investment on his part over two-year period (not a lump sum). It'll take me about 6-8 months to architect and develop the first version and launch it. Not sure what other information to offer, so ask away.

I need suggestions on how to structure this partnership. I don't have any money to invest. So this can't be a partnership where each partner pays his share of money into the pot base on ownership ratios. In any case, with me handling almost everything, what could the ratios be? If it's his idea and his money, how much of the company should he own? Or I can think of him as an angel investor, investing money in a start up for (what?) percent ownership. Is it possible for me to get paid at least something for my work? I realize this will affect the percentages.

I appreciate any ideas and suggestions. Thank you in advance!

Corporate Structure Partnerships

asked Jan 17 '11 at 14:11
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Lyman Zerga
278 points

2 Answers


2

Track record, track record, track record.

  1. Has he been successful with this type of partnership before. (not the factory)
  2. Can you talk to those people, and hear what they have to say about how it is to partner with this guy?
  3. When he's been successful before, have the characters you are been successful in the same partnership?
  4. If you've checked all of the above, claim as much as you can, but know that if you get less than 10% from the start, with dilution down the line it's not very likely to be worth it.

This questions reminds me a lot about this question about How much equity at seed stage funding.

At this point you're deciding to (or not to) venture into the unknown. Everything is going to change down the line. Basically, there is NO way to know for sure who's going to be pulling the heavy weight. In all fairness, Idea is not as important as Execution, but in reality you need both.

So, doing the necessary due diligence, trust your gut feeling. And with that I mean: If there's ANYTHING that doesn't feel absolutely right, do some more due diligence to clear that feeling away, or don't do it at all. I've been through this, and trust me, you gut feeling is your best friend.

answered Jan 18 '11 at 04:17
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John Sjölander
2,082 points
  • Thank you for the answer and for the link. – Lyman Zerga 9 years ago

1

Were you just throwing out this figure of 97% or have you thought it through? Have you thought about all the non-technical work involved? There are non-programmer founders of fairly technical companies that are invaluable to the business. From helping fine-tune user experience, marketing, fund-raising, finances, etc. If you feel this potential partner will be very hands off and depending on you for literally 97% of the work from programming to filing taxes, I personally would avoid that situation as that seems like that would be frustrating. Having said that, let's move on.

Is there a reason for this be a partnership vs some sort of corporation?

At the very least, have both partners project the hours they will be putting in over the next year, calculate both of your opportunity costs, sum that up with the projected monetary/capital contributions for the next year. I grant that is a rough start, the problems is accurately projecting these contribution.

How well do you know this person? Is there mutual deep trust?

answered Jan 17 '11 at 14:53
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Jinyoung Kim
111 points
  • I have thought it through. This guy is owns a small factory, which is his primary source of income, and has invested in a number of businesses, here and abroad, where he is mostly hands off. He might help with testing somewhat but that's all I can foresee. He is very well known in the community, I even have access to his current and former business partners, and I am asking around for people's opinions. Sorry for using "partnership" as liberally as I have. This will most likely be an S-Corp. – Lyman Zerga 9 years ago

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Corporate Structure Partnerships