Ask HN: How to buy-out my co-founder?

My partner and I have an iOS app (and LLC) that passively brings in about $30,000 year. Ownership is 66% me : 33% her.

I am now an indy dev working on various projects and few freelance gigs as a supplement. I have 100% control in how I choose to allocate my time.

My partner is a typical full time software engineer without much flexibility in her schedule nor extra energy to work after hours.

The app was initially my idea. I co-opted my partner to help rapidly get the app into market in time for a certain deadline. Initially her contribution was significant and we simply agreed to a 50/50 split. Later we adjusted the split in response to me putting in much more effort.

I see a lot of potential in this app if we put in the work required. The app is sustaining a decent level of sales with no support or marketing because it solves s meaningful problem. I've talked with my partner about this and she agrees in principle. We have planned the next steps but we keep having false starts. Many times but she can never work up the motivation to stick with it. When that happens I either forge ahead alone or agree to stop working until it's a better time for her to pick up.

I want to work on this full time. My partner is unable to do so.

The most appealing option I see is to buy my partner's share of our LLC from her. I haven't asked her about this yet because I have no idea what a fair offer would be.

How do I value the company? What things should I consider?

She may not be open to selling or changing the current situation at all. If she doesn't want to make a deal and doesn't want to start putting in adequate time into the company are there any other good options?

3 comments

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DevX101 14y ago ↗

Assuming the revenue is pretty stable (and not declining), I'd offer her 2x her share of annual revenue, or $20k. If the growth on the app is increasing rapidly, you may have to offer more.

These things are more art than science, but if both of you agree to a number, then that's the fair price.

coryl 14y ago ↗

I suppose the easiest and smartest thing to do would be simply asking her if she's interested in selling, and then asking her how much she'd like.

A straight up buyout offer is pretty hostile. You need to tell her about your desires to continue this project on your own. Your negotiations will be far easier if she understands and sympathizes with your motivations.

So really, this isn't a business negotiation but a human relationship and communication deal.

yourapostasy 14y ago ↗

Typical buy-out of a small business with a proven revenue stream is 7X annual gross. Source: Bruce Williams talk show. You can also speak with a business broker to feel out a rough rule of thumb with someone who is a middleman for buyers and sellers of small businesses every day.

Showing her that you are serious about taking your mutual business to the next level by being willing to commit to 7X her share ($69,300, likely in installments) may convince her to put in more time into pulling her share of the work. You are essentially offering to lock in her upside, with the implied optimism that you will make back many times that once you own the product. If she is perceptive, she'll see that you wouldn't be offering this to her if you didn't think you would make it back and then much more besides, and that could motivate her to put more effort into the product.

Another option is to explore a royalty arrangement. She agrees to sign over her ownership (which seemed to be loosely conditioned on participation level) in exchange for a perpetual or term-based royalty to sit back and do nothing. The term could be temporal ("5 years") or metric-based ("until X% of the functions committed to the repo are fully authored by me"), level ("X% of gross sales") or tapered ("start at X% of gross, drop to Y% per fiscal quarter"), pretty much the sky is the limit on what you can make up and negotiate.