Innovation versus Industry

Dear IEEE Collegues: I have an offer of 7 percent of a stable company (which is not presently public) for my company's software. They have not invested in software programming, have licensed my software for over three years and grown their company, and now they want exclusive use. What should I consider? Over 7500 hours have gone into approximately 4-5 major modules and 10 companion modules. Former student IEEE member ('79-'81) and current IEEE member, Larry Timmins ftiadmin@fhb.clickcharge.com ltimmins@ibs.clickcharge.com 516-663-0426

I'd say that you have to decide if 7% of their company is worth more than 100% of your own. M Timmins wrote: > Dear IEEE Collegues: > > I have an offer of 7 percent of a stable company (which is not presently > public) for my company's software. They have not invested in software > programming, have licensed my software for over three years and grown their > company, and now they want exclusive use. > > What should I consider? Over 7500 hours have gone into approximately 4-5 > major modules and 10 companion modules. > > Former student IEEE member ('79-'81) and current IEEE member, > > Larry Timmins > ftiadmin@fhb.clickcharge.com > ltimmins@ibs.clickcharge.com > 516-663-0426

On Wed, 28 Jul 1999 21:41:03 -0400, M Timmins <mtimmins@ibs.clickcharge.com> posted: >I have an offer of 7 percent of a stable company (which is not presently >public) for my company's software. They have not invested in software >programming, have licensed my software for over three years and grown their >company, and now they want exclusive use. > >What should I consider? Over 7500 hours have gone into approximately 4-5 >major modules and 10 companion modules. Care is necessary. At 7500 hours of effort, if the software becomes their exclusive property, this decidedly represents a "million dollar question," or very nearly so. Surprisingly enough, it is quite possible for that 7% to be as near to valueless as makes no difference. - If you have no market in which to sell the stock, the stock is, in and of itself, valueless. - If they pay no dividends, you have no immediate source of income. - Note that if there are multiple classes of shares, some classes may pay dividends, and others not. These all represent reasonable factors that could lead one to believe that a private stock offering could readily be of as near nothing as makes no difference. On the other hand, if the company "goes public," 7% might represent a quite valuable stake. 7% of a $30M company would be $2.1M, which is a not inconsiderable sum. But just because they might like to go public, and tell you such, does not mean that this will actually happen. As a wild guess, I'd discount estimates of such by a factor of 4, as, with "wild guess," there might be a 1/4 chance of the $2.1M payoff, with a 3/4 chance of "as near nothing as makes no difference." It is real critical for you to make sure that that 7% represents a valuable consideration *for you.* It may be a neat idea to build up a list of possible valuations (not unlike the scenarios I suggest above, although probably with real numbers so that they become realistic), bounce them off of your favorite CPA, and consider whether or not you should present the list to the would-be-buyers of your software as the basis for establishing a need for "more in the deal." In effect, you say: "Here are some reasonable valuation scenarios under which the 7% `stake' you're offering turns out to be of little no value. Do you have counterevidence to establish that this is wrong, or can we change the deal so as to *make* it wrong?" You probably want the CPA or equivalent sitting at the table with you; it's not critical that it necessarily be a CPA, but it *does* need to be someone you trust who won't be dazzled by the wheeling and dealing. And who can say "Walk away," if it looks bad... Note that this is somewhat like an engagement for marriage, and you've just been offered the "ring." If you break up before the wedding, you probably won't remain Close Friends, which will have implications on your sales to the company. -- Is the surface of a planet the right place for an expanding technological civilization? cbbrowne@hex.net- <http://www.ntlug.org/~cbbrowne/lsf.html>;

Thank you for the information (Christopher, Madison). Please keep your comments coming. It is a tough decision process. Larry M Timmins <mtimmins@ibs.clickcharge.com> wrote in message news:7nobgv$qso$1@usenet48.supernews.com... > Dear IEEE Collegues: > > I have an offer of 7 percent of a stable company (which is not presently > public) for my company's software. They have not invested in software > programming, have licensed my software for over three years and grown their > company, and now they want exclusive use. > > What should I consider? Over 7500 hours have gone into approximately 4-5 > major modules and 10 companion modules. > > Former student IEEE member ('79-'81) and current IEEE member, > > Larry Timmins > ftiadmin@fhb.clickcharge.com > ltimmins@ibs.clickcharge.com > 516-663-0426 > >