Joint Venture payment query

[SmallFry]

Hi

I am a software developer who started own small business mid 2012 and have written a computer program to be used in organisations dealing with training. I helped another business out who have contacts in the area my software will be aimed at so I agreed to a 50/50 partnership, gentlemens agreement, whereby his company will undertake the sales side and 1st/2nd line support and I will concentrate on product development and any "bug fixes" in software.

However, I am wondering if anyone has experience of this type of joint venture as I'm trying to work out the best method of payments. I own the intellectual property and I am the creator of the product, what would your thoughts be around how payments from clients should be processed? My thinking is that, as I am the product owner, his sales team would close the deal, and my company would invoice the client for the full payment to cover the software product for 1st year and 1st year support. Then my "partner" would invoice me for the sale fee, I was thinking perhaps 30% of their split with the remaining 70% of their split being invoiced to my company over the 12 months that they are to undertake supporting the systems?

Does sound reasonable to anyone in the know? I'm very new to this and don't want to come across as a cheeky bugger but by the same token do not want to accept the full liability aginst partner company, if for instance they "went bump" and had already received their entire 50% I would be left with having to service the support to fulfil contracts and also not have 50% of the money the client had paid for this service?????

Any advice greatly appreciated.

Cheers

[Harold Mansfield]

Hi

I am a software developer who started own small business mid 2012 and have written a computer program to be used in organisations dealing with training. I helped another business out who have contacts in the area my software will be aimed at so I agreed to a 50/50 partnership, gentlemens agreement, whereby his company will undertake the sales side and 1st/2nd line support and I will concentrate on product development and any "bug fixes" in software.

However, I am wondering if anyone has experience of this type of joint venture as I'm trying to work out the best method of payments. I own the intellectual property and I am the creator of the product, what would your thoughts be around how payments from clients should be processed? My thinking is that, as I am the product owner, his sales team would close the deal, and my company would invoice the client for the full payment to cover the software product for 1st year and 1st year support. Then my "partner" would invoice me for the sale fee, I was thinking perhaps 30% of their split with the remaining 70% of their split being invoiced to my company over the 12 months that they are to undertake supporting the systems?

Does sound reasonable to anyone in the know? I'm very new to this and don't want to come across as a cheeky bugger but by the same token do not want to accept the full liability aginst partner company, if for instance they "went bump" and had already received their entire 50% I would be left with having to service the support to fulfil contracts and also not have 50% of the money the client had paid for this service?????

Any advice greatly appreciated.

Cheers

Software + Intellectual property+ Partnership + Money = Get a lawyer.

IDK care what you have to pawn, get a real attorney to draw up a real agreement that is enforceable in court and protects you where you need it. Non compete. Disclosure, rights, ownership, profits..all of that. This is your software. You have the most to loose. Gentleman's agreements don't even work out in movies.

[Business Attorney]

I agree with Harold about the documentation. If you are asking from a business point of view does it make sense not to give them their full share (whatever it is) up front when part of what they are doing is landing the sale and part is servicing the client, the answer is a resounding yes.

Whether the up front portion is 30% at the time the sale is closed or some other number depends in large part on what they have left to do after the sale is closed. Also, are you paid 100% up front or do the revenues come in over time? Do you have a good idea of what it would cost you to get someone else to provide front line support if your partner bailed out on you? Could you ever have to refund money to the client? Those are a few of the questions to ask.

[SmallFry]

Cheers for the advice gents/ladies

Am brand new to this stuff, wet behind the ears, naive and trusting although this whole process is turning me into possibly the most paranoid person on gods green, I've been through every scenario where I can be ripped off a million times :(

[Konig]

I know how you feel, been there, and still find myself there periodically! Try to relax, the paranoia makes it hard to think. At the same time I try not to equate relaxing with trusting! It is like a chess game, calm but suspicious. ;)

Talk to as many people as you can, a few lawyers, other business people, etc. What we lack when we start is a sense of perspective. I find that comes from two sources, experiance, and talking to people with experiance.

I generally think most people don't want to rip you off. They want to make money. They will rip you off when the start losing money!

[Freelancier]

I think from a process view -- you've already gotten the "get a lawyer" advice -- you've made it too complicated from the client's perspective... and maybe from your own as well.

The relationship you're describing -- where you own the software and provide support to them and they in turn sell the product to the client and provide support -- is called a "reseller relationship". And the way it works is that you bill them for the cost of the product and they turn around and resell it to clients with a maximum markup (so that they don't overcharge for it) and that markup is their sales fee. This way, they sell the license and you get paid on the licenses they sell at your price (which you could discount from time-to-time to help close deals) and you don't have to worry about their markup as long as it's within the contractual parameters. You can also include minimum sales targets in the contract if you want to give them motivation to sell a bunch of your licenses... but that usually implies your product is already pretty popular.