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Ask HN: Should I take the “sponsorship” deal?

7 points by MateuszMucha ↗ HN
Quick background: for the past 2 years I've been working on a project, a mobile app (Google me if you'd like to see it for yourself, I don't want this post to be an ad). It recently got a considerable amount of traction. My next step for the product requires a few extra hands on deck and I need money for that.

So far I was reluctant to talk to VCs, because I'd lose some control and I'd have to deal with all the stuff I don't want to (incorporating, papers, lawyers, etc.) instead of working on the product. So I came with an idea: since the app's is a _bit_ hot right now and it has to do with finance a bit, I'd look around for a bank which would be willing to pay for the development in exchange for my project helping them strengthen the image of a bank that understands mobile and new technologies. I'd brand the app a little (splashscreen, link to their mobile app in the menu and a few extra sponsored features), I'd mention them whenever I talk to the media. So I contacted a few banks, met with some people and it looks like this thing might happen.

I also spent the last few weeks talking to a bunch of smart people about my project. I figured I might learn from their experience and boy, was I right! I got a ton of good advice (and a lot of praises, which nicely tickled my ego).

The last meeting I had put a lot of question marks in my head, though. I met with Jacob Krzych, CEO of Estimote and an YC alumnus. I got a ton of good advice (thank you, if you happen to read this :-) ), but one thing surprised me, he said it would be a great mistake to do the bank deal. It would be a distraction and I'd have to compromise the UI. I should talk to VCs instead.

Now I'm torn... we're talking about an amount that would let me hire enough people (4-5) for half a year but I have to agree that my app's interface wouldn't be 100% about the user anymore.

What do you think?

11 comments

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gk1
I don't have an answer for you, but something to think about is this:

Always consider the background and context of the person who's giving you advice.

They may be smart, successful, and experienced, but they're not immune to bias.

If you're speaking with a YC alum or anyone in the VC world, of course they'll suggest talking to VCs. If you're speaking with someone in the finance/banking industry, of course they'll side with the banking deal.

This includes members of HN, too. Hopefully you're able to take all the advice with a grain of salt and make a decision that you feel is right for you.

loumf
What about white-labeling? Meaning, you keep the version you have and fork one for them with their branding -- non-exclusive.

Perhaps part of the white-labeled app is bank-specific content in addition to branding (a branch locator, for example).

MateuszMucha
I offered that as an option, they weren't interested.
PeterWhittaker
They pay for development, they get branding, but for how long?

The answer might change your thinking. Exclusively theirs forever, less attractive. Exclusively theirs for a year, then no restrictions on what you do next, more attractive. Theirs for 3 years, then you can take it to others who are not their competitors, perhaps less attractive.

It's all in the details.

MateuszMucha
It would be a half a year deal.
PeterWhittaker
Six months' exclusivity? Without knowing any other details, this sounds great to me. You get to build something, it is theirs alone for six months, and after that, well...

...were it possible for others to learn what your were doing, perhaps they would sign up quickly on the first day of the seventh month....

fapi1974
With the caveat that there is no right answer, I can tell you as a mobile advertising guy that your users are unlikely to desert you just because you build in sponsorship. Particularly on Android they have been trained to expect ads in free products, and there are plenty of ways to do it so that it flows with the user experience. What I would recommend is that you don't let the bank completely dictate the UI - rather build in the messaging in a way that you yourself would find acceptable. Feel free to ping me if you'd like advice on the ad units.
alain94040
The reason startup people are telling you to not do the deal with the bank: banks are large corporations that move extremely slowly. Even going from a verbal agreement to a signed contract may take 6 months. Then getting a check could be another 3 months. Any of those delays could kill you at any time, and the bank couldn't care less. So that's where the real risk is for you: too much imbalance between the two parties of the deal.

That being said, you got to do whatever it takes, so if that's the only way to survive, then sure, do it. Talking to VCs will not be much faster anyway. Angels could help faster probably, if that works for you.

seanrrwilkins
Even without knowing the specifics of the deal, or your site/app traffic, I'd have a hard time accepting the deal based on the exclusivity and cash flow issues in dealing with the bank.

If this bank wants exclusivity, I'd ask for a multiple of their offer. If they don't want to pay it, you can easily shop this around as a white-label tool to apply to multiple verticals: banks and lenders, restaurants, travel, education, etc.

And don't forget that you will likely not see a check from any corporate customer for at least 120 days assuming 30 day for contract and 90 day terms.

I'd also look at alternative lending tools like SMB loans, gov grants, and SMB funding focused startups.