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Ask HN: Equity in exchange for clients

I founded a company 14 months ago in an industry where it is peculiarly difficult and time consuming to break through. An established, relatively large business in the same industry has been monitoring my progress. Today I receive a phone call with an offer: 40% equity of your company in exchange of clients — no money (save a nominal value to ensure compliance). My immediate reaction is “no” — they are asking me to give out almost half of my company for no money, and essentially become a manager of a now-subsidiary of their business, with all the hassle and none of the benefits that an employee of that business would receive if he or she were a manager. I fee they are approaching me at my weakest because they know I’m desperate to break through. On the other hand, it could mean guaranteed business and possibility of growth, albeit losing much of my autonomy and decision making: working hard for someone else’s dream. Have you had a similar situation? What are your thoughts?

netrap 9y ago
40%? Wtf? No. You probably won't even get anything and they'll just steal your ideas. Just string them along and try to figure out who their clients are and go to them directly with something that they want. You can make it happen. Just my 2c.
- trying_my_best 9y ago
  That’s my thinking: they have nothing to lose (literally, not even money), but they get to keep 40% of any upside. I really feel disappointed, because I let a couple of opportunities pass while waiting to make business with them. Oh well, live and learn.
mengledowl 9y ago
That's a terrible offer! Your assessment is correct that they are approaching you at your lowest. You said it yourself, albeit in different terms: they're trying to take advantage of you. This is a good sign that they're at least somewhat threatened by you and want to make you complacent. It's not clear from your question what they've offered in terms of how many clients you'll get or how they'll decide that, but I'd imagine if you took the deal it would somehow work out that you got very few clients, those clients would be low quality, and you'd have a big loss in autonomy. When you give away parts of your company, you want to do it because you can see them giving you more than that back in value, not because it could help you barely scrape along (which is what it sounds like you're looking at with this deal).
- trying_my_best 9y ago
  Essentially they offered two employees of their company stationed at my location (we are in different states, and I’m located next to a massive potential customer). I would get to “manage” the employees, and pursue clients backed by some certifications that the large company has and I don’t (like CMMI, ISO, and the like). Also, they cannot apply to certain contracts earmarked for “small businesses”, but I can. And if I get it, I can make the large business my subsidiary for contractual purposes. I feel like they see me as a tactical chip instead of a great engineer, which is what I strive to be.
PaulHoule 9y ago
Fuk 'em

netrap 9y ago

40%? Wtf? No. You probably won't even get anything and they'll just steal your ideas. Just string them along and try to figure out who their clients are and go to them directly with something that they want. You can make it happen. Just my 2c.

trying_my_best 9y ago
That’s my thinking: they have nothing to lose (literally, not even money), but they get to keep 40% of any upside. I really feel disappointed, because I let a couple of opportunities pass while waiting to make business with them. Oh well, live and learn.

mengledowl 9y ago

That's a terrible offer! Your assessment is correct that they are approaching you at your lowest. You said it yourself, albeit in different terms: they're trying to take advantage of you. This is a good sign that they're at least somewhat threatened by you and want to make you complacent. It's not clear from your question what they've offered in terms of how many clients you'll get or how they'll decide that, but I'd imagine if you took the deal it would somehow work out that you got very few clients, those clients would be low quality, and you'd have a big loss in autonomy. When you give away parts of your company, you want to do it because you can see them giving you more than that back in value, not because it could help you barely scrape along (which is what it sounds like you're looking at with this deal).

trying_my_best 9y ago
Essentially they offered two employees of their company stationed at my location (we are in different states, and I’m located next to a massive potential customer). I would get to “manage” the employees, and pursue clients backed by some certifications that the large company has and I don’t (like CMMI, ISO, and the like). Also, they cannot apply to certain contracts earmarked for “small businesses”, but I can. And if I get it, I can make the large business my subsidiary for contractual purposes. I feel like they see me as a tactical chip instead of a great engineer, which is what I strive to be.

PaulHoule 9y ago

Fuk 'em