What's Fair?

[OneSource]

Hi,

I'm a software developer and I have an investor that wants to fund one of my applications that I am yet to develop. The investor is going to pay my salary while I develop the application and will provide any hardware and software that I need (but basically already has everything that I would need). The investor wants to know what percentage I expect of the profits (if there are any), as well as what percentage I would expect if the product was sold to another company. Does anyone have any ideas about this? Or has been in a similar situation? Or know of a web site that has information or case studies for similar situations?

Thanks in advance,
OneSource

[RobDog888]

I would say that you should retain some major percentage of
ownership of the application. This may prevent the funder from
selling the app and cutting you out of sale profits and profit
percentage that hes offering. If it is sold you should get some
percentage of royalities also.

If its a fair amount of money, I'd say to consult with a software
litigation lawyer at least to help get your contract together.

Dont forget that it could be made to look like there are not profits,
but may actually have some. Thus, cutting you out of profits.

HTH

[dglienna]

Watch out. If you are an employee, then the employer owns any work done while on the clock.

[mendhak]

30% + $X amount as an 'overhead initiative'.

If he's not willing, then negotiate.

[dglienna]

50% up front, 25% on completion, and the balance when he's satisfied that it's working correctly. I have done a few projects with these terms. Never had a problem, but if you are going to be selling the product to make a profit, then you may want to be willing to be flexible.
If he is supplying all the resources to create the project, then I'd ask for these terms, and 50% of the profits, too.

[OneSource]

Thanks for the replies. Very good information indeed!

dglienna,

50% up front, 25% on completion, and the balance when he's satisfied that it's working correctly.

doesn't really apply in this case because I will be working as an employee of the funder and not independently. Also, the product to be developed is my idea and we haven't put an overall price tag on it (which would probably be impossible to do at this point).

If there are other ideas on this, please post.

Thanks,
OneSource

[RobDog888]

One additional point, if its your idea and your doing all the work
writting it, then you should think about Copyrights and
Trademarks (Registered or un-registered) for YOUR program.
Its not very expensive either.

I wouldnt give him anything more than 49% in order for you to
retain absolute control.

HTH

[plenderj]

Originally posted by RobDog888
One additional point, if its your idea and your doing all the work
writting it, then you should think about Copyrights and
Trademarks (Registered or un-registered) for YOUR program.
Its not very expensive either.

I wouldnt give him anything more than 49% in order for you to
retain absolute control.

HTH

Yes but the problem with that is if you're developing something on company time for the company, it belongs to the company itself, not you.

[RobDog888]

True, but in this case its his idea and they are getting ready to
enter into an agreement which he can nogiate the terms of
before its too late.

If he can get the agreement to state that he retains 51%
ownership before he is funded, then he has the rights. Else, your
correct. He looses ownershhip and control of "his" product.

[OneSource]

for the responses.

My meeting with the investor is this afternoon! We'll see how it goes. Thanks to you guys, I feel much better about the meeting!

[Pino]

let us know how it goes
Good luck

[OneSource]

Hi All,

Just wanted to post an update on how things turned out. The CEO of the company said that he was having financial issues (mainly with cash flow) and wouldn't be able to fund me working on the project full time right now. He said that we could revisit the issue after the first quarter next year when he expected to be in a healthier financial position. Therefore, we never even got to the point where we discussed what would be fair in terms of splitting any profits generated.

Thanks to everyone for your input. Unfortunately, I'm back at square one. I think I'm just going to develop the app in my free time, which will be difficult since I have a full-time job and will be getting married soon, but at least I can call all the shots.

[joan_fl]

The CEO of the company said that he was having financial issues

Awww if I had a dime everytime....

I think I'm just going to develop the app in my free time

On the bright side you get 100% of the profits