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Advice on doing development for equity/deferred payment

4 points by vivekamn ↗ HN
I am the founder of Ideas2It(www.ideas2it.com) which has a onshore/offshore team. The idea is to be technology partners for startups to bring their ideas to market without taking too much funding. A good case of this model is www.scoobydeal.com, a rails site which we implemented from concept to completion in just 3 months.

Though I am willing to share the risk on ideas I believe in, by taking part of the compensation in equity, I am being repeatedly asked to do the whole work for equity or deferred payment.

There is a particularly interesting(very interesting technology, good background of the founder,etc) project on the table, which I am being asked to do on deferred payment. I.e. payment on Angel funding, till then 1% interest after first 6 months.

What are the pitfall of such a deal? If I go for it, how should I structure the deal?

5 comments

[ 4.4 ms ] story [ 24.3 ms ] thread
swombat
If you're doing it for free, you're a co-founder. As such, you should have a lot of founder equity. 30% sounds about right - don't forget it might get diluted later. And in that case, don't work on it unless it's a business you do want to start, obviously - and of course you can't start several of them at the same time.

If they want you to do it for free without giving you a large chunk of equity, fuck'em.

If they want to pay you, payment is within 30 days after the invoice is sent, not "when we have cash". That's a joke, not a contract.

noonespecial
If they want to pay you, payment is within 30 days after the invoice is sent, not "when we have cash". That's a joke, not a contract.

This is more true than I can tell you. Even when it comes from "friends". Once you agree to these 'terms', you will go right to the very bottom of the list. There will always be something more pressing to spend money on than to pay you for something that is already done. They'll also find a way to make you feel bad for asking even if you do it while they're unpacking their new Aeron chairs and 24" monitors.

I have traveled this road, friend. Here be sorrows.

vivekamn
This is the sanitized version of the payment terms. This is put in as an exhibit in the software contract agreement itself. I do like the idea and after some research, do like the founder and his background. Among other things, he has a phd in the area his product is in and also worked for a company in this space for 9 years. Also has some working core software(he spend last couple of year full time on this). But are the terms fair? Under what circumstances would you take on such a project(if ever)? -------- A fixed price of $X for completion Phase 1 Milestone and an additional $X for Internal Release Milestone. Payment for both Phase 1 and Phase 2 (Internal Release Milestone) will be made only after delivery and acceptance by Client of Documentation to be made pursuant to paragraph 5 of this Agreement and after Client secures funding. If funding is not secured by February 13th, 2009 an interest of 1% per month will be payable on the amount due for each month after February 13th, 2009.. However, the Client shall pay the Contractor within 60 days upon the expiry of the deadline of February 13, 2009, failing which the Contractor shall terminate this Agreement as per Clause 14.3.
swombat
That's a load of crap. "Terminating the agreement" is worthless if you've already done the work and delivered it.

I think considering how shady they're being, I wouldn't work for these guys unless they agree to a 25% payment upon signing the contract, then 25% upon completing the first milestone, then 50% at the end.

vivekamn
Thanks for the feedback. The client is now talking hard cash for the first phase and a convertible note for the second phase.