4 ms·

Ask HN: Help, I'm in a pivotal negotiation and I'm not sure what to do

7 points by hyuk_ki 6y ago

I've been working on a side project for the past two years, on nights and weekends, to build a web application for an online teaching company which I'll call Teaching Company for the rest of this post. I didn't get paid for this work during this time. After seeing how far the software has come, Teaching Company is happy with the product and wants to go live. We've only made a verbal licensing agreement so far, where we would provide the software for their exclusive use for $5 per customer a month. Now that Teaching Company is all in on the product, the CEO offered to buy the software. Here is what they offered. Around 90K up front and 4% equity in the Teaching Company. The CEO expressed that this is a good deal since my software isn't worth that much at the moment and Teaching Company can potentially sell for over 50 - 100 million dollars years down the line. I somewhat changed all the figures mentioned above for the sake of confidentiality. I never had to build software for a single company. There's way more money to be made by competing in the wider market, although it's significantly harder upfront. I made the decision to build software exclusively for Teaching Company because I believe in their product, and more importantly, I care about my work-life balance and having time to spend with my family. With that said, competing in the market is technically still on the table since we haven't signed any contracts yet, and we've only made verbal agreements so far. Of course, as the CEO said, the software isn't worth very much at this point since it's still in the beta testing phase—but that doesn't mean we shouldn't consider its future potential worth. My gut reaction is that this is not a great deal and I'm still thinking through what would be the best counter offer. How would you approach this negotiation? This is my first time going through this sort of thing and could use some advice. Your feedback is very much appreciated!

nibsfive 6y ago
In general, ignore any whims of the other side. Just flat out ignore. Assert what's reasonable. Decide your walk away point. Anchor high and make sure whatever their first ask is you have a thoughtful but firm negative response to.
smt88 6y ago
Take the deal. You have no idea what it could be worth. It will likely be worth nothing, as are most new ventures. You have no real power here at all. The company can rebuild it for not much more than they're offering to pay you. They can also just sue you and win by default because you don't have enough money to fight it. Also your verbal contract is probably not enforceable. There is a statutory limitation on contracts that aren't signed. I forget what it is, but I think it's one year. This is a better deal than most people could get. Take it.
svennek 6y ago
Please don't think that the software in itself has any value (unless it is an extreme outlier). Most software/saas value comes from grueling marketing and sales work after it is "ready". Ask yourself. Can you drive the sales process yourself, potentially earning zero for a year? Do you want your day to be a on-phone sales person? I think it comes down to the old saying "a bird in the hand..". Unless you LIKE doing endless phone followups and negotiations with customers, my advice would to strongly consider the offer, especially if you like your potential new employer. 90ish grand is not unicorn land, but definitely not pocket money either - and from two years of sidejob I am impressed (as a company owner for more than a decade and a half). As you write it, it seems like 4% of the company not for percent of the sales. That might be much more (or less) value. Being employed in a good company with a noticable equity share could do wonders for your work-life balance (but is not guaranteed). As a last point. Being rich does not make you happy. Having slightly more than enough* and more freedom will likely make you much more happy. * = Enough is hard to quantify but if you never think about money in your daily life, but you cannot buy a new iphone (or something of similar value) without thinking slightly is my rule-of-thumb for "enough". EDIT: missing "and" and typos
haltingproblem 6y ago
You can do better than their first offer which is certainly a low-ball one, for that is how negotiations go. Also whenever the opposite side tells me a deal is good for me it is certainly self serving! You have to do some calculations and forecasting w/ some assumptions but can all be done in a few hours. The other strategy would be to wait and let the cash flows start. Lots of way to take this forward - get someone to counsel you.
- svennek 6y ago
  > Also whenever the opposite side tells me a deal is good for me it is certainly self serving! That might be the case or not. Probably a reasonable first rule of thumb. But it might also be a good deal as labelled on the tin. For example, the CEO might be embarrassed of the risk the OP took for the company and wanted to pay him retrospectively for the work he (the CEO) has guesstimated the OP did. The software is IMHO unlikely to have much value in itself when nearly finished and without a organization to drive sales... Some people - me included - really like win-win negotiations/relationships and are not always profit maximizing.. In the end, it all depends on your counterparty and you.
lawwantsin17 6y ago
TAKE IT AND RUN!
hellweaver666 6y ago
I'm a bit confused about the situation... you've been building software, that they need to run their business for free for two years? It sounds to me like you hold all the cards here. If you don't sell it then they have to pay you an ongoing income or rebuild the software from scratch? Do you know how many customers they plan to obtain over the next couple of years? I'm guessing they plan to acquire enough that it's going to be worth their while to spend the money up front. Either that or they've determined there's a huge risk in them not having control of the software (i.e. you could just shut it down on a whim and destroy their business) Either way... you seem to hold all the cards. What do you want out of the deal? You say you believe in them... why not ask to come on board and get a sizeable share of the company?
- svennek 6y ago
  What cards? If it is two years of evenings and weekends and the OP is a "regular programmer" (as opposed to a rock-star) that is likely in the neighbourhood of two to four man-months worth of dev time (likely on the lower end due to having the good work-day hours). Not nothing, but not a problem either for a larger company... In the end, they will just re implement it themselves if OP gets cross..
  - hellweaver666 6y ago
    The card with "I own the software" written on it.
    - svennek 6y ago
      If it is half a man-year of work and not really urgent, that card has zero effect on the other party... OP can sell his software or not, the other party will manage either way.
      - hyuk_ki 6y ago
        I wouldn't say finding quality engineers and building software is simple for any company. If it was simple, they would have already done it on their own or decide to do it right now and not bother making a deal with me.
uberman 6y ago
It is a little hard to tell how the per customer and lump sum compare without knowing how many customers they have. Your lump sum represents 18,000 customer months. Equity is always a gamble but I think you should take your own words to heart. "I made the decision to build software exclusively for Teaching Company because I believe in their product" If you believe in this company then the equity might be more important to you (sense of accomplishment) than the money. It would be to me. The other thing this highlights is that people should really get this contractual stuff out of the way before hand if possible. It would be a shame for either party to feel slighted as a result of this opportunity. If it were me, and I truly believed in the company and their mission particularly given I might have worked on the app in my spare time and that I don't need the cash, I would counter with a proposal for actually less pay (potentially none) upfront but more equity. But that is me and factors in my financial situation. I would love to own 10% of an education related company that I actually believed in.
injb 6y ago
Disclaimer: I have no experience of this kind of thing. But I would push for a better deal, and sell. Of course, if they know that this is your plan, you obviously cannot get a better deal. So they have to think that Plan A is not to sell. But ultimately if you don't see how to grow this yourself, you should sell to someone who does. The fact that you're offering them an exclusive license suggests you don't really know how to turn this into something much bigger. Should you push for a bigger equity stake, or more cash? That's harder to answer
gus_massa 6y ago
Is $45K/year a good salary for the country where you live? Is the $90K in hard green cash or it's some kind of future payment? Is that in written? Assume the 4% is worthless, but pick it just in case, but don't assume it is worth $2MM. Is that in written? How many founders, how many programmers and how many other employees does the company have?
- hyuk_ki 6y ago
  90K is around half my yearly salary so while it's nice, it's not a great deal of money to me. It's certainly not worth having sacrificed many nights and weekends over the years. The equity is worth a lot more than 90K though, so that's the main appeal of the deal.
  - gus_massa 6y ago
    Do they have any customer now? [And again, if you pick offer with the 4%, get it in written. A verbal contract isn't worth the paper it's written on.]
  - hellweaver666 6y ago
    Equity is only valuable if they turn it into something you can sell. Do they have any plans to go public?
angryasian 6y ago
Is this allowing them full licensing in perpetuity ? Do you have any approximate numbers as to how many users they are expecting ? I think you need to evaluate these numbers before you can negotiate. Obviously you want to keep this deal, but you're going to need to bring in revenue to scale.. so keeping in some type cost per seat is ideal. It is a good strategic investment opportunity and for a seed round, its definitely not bad.

7 points by hyuk_ki 6y ago

nibsfive 6y ago

In general, ignore any whims of the other side. Just flat out ignore. Assert what's reasonable. Decide your walk away point. Anchor high and make sure whatever their first ask is you have a thoughtful but firm negative response to.

smt88 6y ago

Take the deal. You have no idea what it could be worth. It will likely be worth nothing, as are most new ventures. You have no real power here at all. The company can rebuild it for not much more than they're offering to pay you. They can also just sue you and win by default because you don't have enough money to fight it. Also your verbal contract is probably not enforceable. There is a statutory limitation on contracts that aren't signed. I forget what it is, but I think it's one year. This is a better deal than most people could get. Take it.

svennek 6y ago

Please don't think that the software in itself has any value (unless it is an extreme outlier). Most software/saas value comes from grueling marketing and sales work after it is "ready". Ask yourself. Can you drive the sales process yourself, potentially earning zero for a year? Do you want your day to be a on-phone sales person? I think it comes down to the old saying "a bird in the hand..". Unless you LIKE doing endless phone followups and negotiations with customers, my advice would to strongly consider the offer, especially if you like your potential new employer. 90ish grand is not unicorn land, but definitely not pocket money either - and from two years of sidejob I am impressed (as a company owner for more than a decade and a half). As you write it, it seems like 4% of the company not for percent of the sales. That might be much more (or less) value. Being employed in a good company with a noticable equity share could do wonders for your work-life balance (but is not guaranteed). As a last point. Being rich does not make you happy. Having slightly more than enough* and more freedom will likely make you much more happy. * = Enough is hard to quantify but if you never think about money in your daily life, but you cannot buy a new iphone (or something of similar value) without thinking slightly is my rule-of-thumb for "enough". EDIT: missing "and" and typos

haltingproblem 6y ago

You can do better than their first offer which is certainly a low-ball one, for that is how negotiations go. Also whenever the opposite side tells me a deal is good for me it is certainly self serving! You have to do some calculations and forecasting w/ some assumptions but can all be done in a few hours. The other strategy would be to wait and let the cash flows start. Lots of way to take this forward - get someone to counsel you.

svennek 6y ago
> Also whenever the opposite side tells me a deal is good for me it is certainly self serving! That might be the case or not. Probably a reasonable first rule of thumb. But it might also be a good deal as labelled on the tin. For example, the CEO might be embarrassed of the risk the OP took for the company and wanted to pay him retrospectively for the work he (the CEO) has guesstimated the OP did. The software is IMHO unlikely to have much value in itself when nearly finished and without a organization to drive sales... Some people - me included - really like win-win negotiations/relationships and are not always profit maximizing.. In the end, it all depends on your counterparty and you.

lawwantsin17 6y ago

TAKE IT AND RUN!

hellweaver666 6y ago

I'm a bit confused about the situation... you've been building software, that they need to run their business for free for two years? It sounds to me like you hold all the cards here. If you don't sell it then they have to pay you an ongoing income or rebuild the software from scratch? Do you know how many customers they plan to obtain over the next couple of years? I'm guessing they plan to acquire enough that it's going to be worth their while to spend the money up front. Either that or they've determined there's a huge risk in them not having control of the software (i.e. you could just shut it down on a whim and destroy their business) Either way... you seem to hold all the cards. What do you want out of the deal? You say you believe in them... why not ask to come on board and get a sizeable share of the company?

svennek 6y ago
What cards? If it is two years of evenings and weekends and the OP is a "regular programmer" (as opposed to a rock-star) that is likely in the neighbourhood of two to four man-months worth of dev time (likely on the lower end due to having the good work-day hours). Not nothing, but not a problem either for a larger company... In the end, they will just re implement it themselves if OP gets cross..
- hellweaver666 6y ago
  The card with "I own the software" written on it.
  - svennek 6y ago
    If it is half a man-year of work and not really urgent, that card has zero effect on the other party... OP can sell his software or not, the other party will manage either way.
    - hyuk_ki 6y ago
      I wouldn't say finding quality engineers and building software is simple for any company. If it was simple, they would have already done it on their own or decide to do it right now and not bother making a deal with me.

uberman 6y ago

It is a little hard to tell how the per customer and lump sum compare without knowing how many customers they have. Your lump sum represents 18,000 customer months. Equity is always a gamble but I think you should take your own words to heart. "I made the decision to build software exclusively for Teaching Company because I believe in their product" If you believe in this company then the equity might be more important to you (sense of accomplishment) than the money. It would be to me. The other thing this highlights is that people should really get this contractual stuff out of the way before hand if possible. It would be a shame for either party to feel slighted as a result of this opportunity. If it were me, and I truly believed in the company and their mission particularly given I might have worked on the app in my spare time and that I don't need the cash, I would counter with a proposal for actually less pay (potentially none) upfront but more equity. But that is me and factors in my financial situation. I would love to own 10% of an education related company that I actually believed in.

injb 6y ago

Disclaimer: I have no experience of this kind of thing. But I would push for a better deal, and sell. Of course, if they know that this is your plan, you obviously cannot get a better deal. So they have to think that Plan A is not to sell. But ultimately if you don't see how to grow this yourself, you should sell to someone who does. The fact that you're offering them an exclusive license suggests you don't really know how to turn this into something much bigger. Should you push for a bigger equity stake, or more cash? That's harder to answer

gus_massa 6y ago

Is $45K/year a good salary for the country where you live? Is the $90K in hard green cash or it's some kind of future payment? Is that in written? Assume the 4% is worthless, but pick it just in case, but don't assume it is worth $2MM. Is that in written? How many founders, how many programmers and how many other employees does the company have?

hyuk_ki 6y ago
90K is around half my yearly salary so while it's nice, it's not a great deal of money to me. It's certainly not worth having sacrificed many nights and weekends over the years. The equity is worth a lot more than 90K though, so that's the main appeal of the deal.
- gus_massa 6y ago
  Do they have any customer now? [And again, if you pick offer with the 4%, get it in written. A verbal contract isn't worth the paper it's written on.]
- hellweaver666 6y ago
  Equity is only valuable if they turn it into something you can sell. Do they have any plans to go public?

angryasian 6y ago

Is this allowing them full licensing in perpetuity ? Do you have any approximate numbers as to how many users they are expecting ? I think you need to evaluate these numbers before you can negotiate. Obviously you want to keep this deal, but you're going to need to bring in revenue to scale.. so keeping in some type cost per seat is ideal. It is a good strategic investment opportunity and for a seed round, its definitely not bad.