Would You use fairsoftware.com to find contributers?


4

Would you consider using Fairsoft 's share vesting system in an early start-up to increase the amount of resources (skilled people) you have access too?

You would be using vested equity (though virtual, whatever that means) instead of cashmoney, to say, get access to a good designer or developer whose skills you could use.

Are there hidden problems that could mess things up down the road?

Has anyone used it to good or bad ends?

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asked Nov 24 '09 at 13:48
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Adam
446 points

3 Answers


2

I woudn't use it. I'm not going into detail but two areas are obvious:

  • The monetary issue : The current currency model evolved as a dominant means to exchange goods and service for a reason. It's flexible. You can exchange your money to almost everything. It's also transparent, because prices signal scarcity and you have some sort of feeling for 'fair' prices. I also serves as a store of value.
  • The legal issue : A similar argument applies to our legal system. It may be complicated but this is because the issues it tries to control are complicated as well. There's so much that can go wrong in an agreement. Legal rules are tested and formulated to cover many common problems.

With this in mind, let's look at some specific problems:

  • What's the fair price in virtual stocks for some work, say designing a web page for a start up? Any contributor would need to consider the chances of the startup to make money, otherwise he may just waste his time designing web pages for 'bad' companies. The same holds true for the founder: How many shares should he spend for design work?
  • While everyone gets a share of the revenue (so it seems, at least), what about sharing the costs? Nearly all companies have (additional) costs but these don't seem to be shared. To do this, you'd need to track all your costs in a virtual accounting software on the platform.
  • What about sharing other means to make incomes? Let's say a designer makes a web page for someone and then, the startup builds a second income stream somewhere else, using the web design. Theoretically, the designer should get a share of the income, too, but unless this is tracked by the platform, how will he know it exists?
  • What happens when your start up makes income? You get the money based on your shares but selling your start-up will be hard. For you'd need the agreement of all the share-holders. On the other hand, what if the startup you have shares with, sold some additional shares elsewhere? Or raised additional money from friends and family?

In all these cases, there're additional transaction costs for founder, co-founders and contributors. They basically need to act as VC investors, trying to estimate the chances of success for each company. At the same time, they need to rely on the platform's legal rules and accounting to make sure it works. But who's going to be the judge when conflicts arise?

At the same time, it doesn't provide any real benefit, does it?

The majority of potential contributors is outside the platform -- you can get freelancers for nearly everything you'd need as a software startup. The majority of potential co-founders is also outside of the platform.

Finally, there's the problem of adverse selection : Startups, co-founders, and contributors who do have a good product or make exceptional work, don't need such a platform, I'd guess. This means, those who do use it, are (to some degree) those who have more risky or less convincing products or provide work that's not that exceptional.

I'm sorry if that sounds negative, but you did ask about potential problems. Yet, maybe it helps.

answered Nov 24 '09 at 22:13
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Claus Schwarm
1,599 points
  • Thanks for the detailed response. Sharing costs is a big one to me, and I'm not sure how they handle that. – Adam 10 years ago
  • Hi, I'm one of the founders, so I should be able to answer all these points. fair price: you have the same problem if you go for a full-fledged C-corp: how many stock options to give away for a given task. sharing other income: you are legally entitled to a share of that income. Fraud is always possible, just like with any other system. selling your startup: why do you say it will be hard? Keep in mind that you can convert into a C-corp, once your project outgrows the legal shell we offer you. The value we hope to provide: a more flexible legal shell for starting your projects. – Alain Raynaud 10 years ago
  • @Alain: Again, sorry for sounding negative. I'm sure there are people who come to a different conclusion and they will be obliged about your service. – Claus Schwarm 10 years ago

1

Claus, I think you might be missing the point of what Fairsoftware.net is: Alain R. can correct me, but it's not meant to create a labor exchange based on equity, but be a way of connecting with possible co-founders who have skills, want to buy into an startup via equity, see value in a "lightweight" business formation model and may not want to go the full startup route.

answered Nov 25 '09 at 14:20
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Bob Walsh
2,620 points
  • Bob, thanks for the comment. Indeed, I should have written 'co-founders' instead of 'contributors'. However, all points still apply, as far as I can see. – Claus Schwarm 10 years ago

1

As one of the creators of FairSoftware, here's what we think our solution is good for:

  • Money : if you create a corporation/LLC for a project that you have with some buddies, expect to pay $200 to incorporate online. That online template won't have vesting (bad) or stock repurchase agreement, so add $500 for a lawyer to fix that. Do you live in California? You'll have to pay $800 of annual taxes minimum, even if your project never makes a dime. Do you want to add a co-founder? More cash for something that may or may not generate income.
  • No Hassle : Adding a co-founder, following Silicon Valley best practices (vesting, trial period, etc.): a few clicks away. Make a deal with someone out of state? Click. Out of the country (as long as their country abides by copyright rules)? Click.
  • Liability : say Tom and Jerry wrote a small application and want to see if they can sell it online. They want to see whether they can make any money before they start a full-fledged company (see minimum viable product for more on testing the waters before diving head-first). Are they going to put a PayPal button with Tom's personal e-mail and contact? With FairSoftware, transactions go through us, so your customers face a corporation (FairSoftware, Inc.), not Tom's garage.
  • Worldwide : because our invention relies on the same copyright mechanisms that the GPL uses, we are not particularly tied to the US tax or corporation system. I know plenty of great people online who don't live next door to me. Don't you wish you could work and build something all together, without administrative hassle?
  • Legally Strong : at any time, you can convert all the IP into a full-fledged C corporation or LLC, preserve all the rights of everyone, and so on. That's what you are supposed to do once your project takes off. We are an intermediate step before/if you succeed. And the legal structure we use was designed (and most of our funding to date went to) by one of the top law firms of Silicon Valley.

Another answer mentions some potential downsides: we handle expenses a certain way. It could be improved in theory, but it hasn't proven to be a problem yet. We have some ideas to make the system better, but it will add complexity, which is not always a good thing.

answered Dec 2 '09 at 03:15
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Alain Raynaud
10,927 points
  • I think the vesting is the best part. However, I had hard time figuring out how payment processing work and how expenses work. I'm sure its on the website, but I didn't see it. – Adam 10 years ago
  • Adam: that's why there is a sandbox so you can play with the tool, create a dummy app, see money flowing in and how everything works: http://sandbox.fairsoftware.netAlain Raynaud 10 years ago

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