Deal: Outsourced Product Dev - proposes 12% vested equity for $15k discount + free branding & marketing. Should I accept? The product dev studio I am outsourcing the initial development to is happy to give a discount of $15000 for 2 years vested equity of 12%. They will also help with free branding and marketing efforts totalling to 95 hours. Plus key contacts with investors and partners. The studio group is credible with good clients list and second time entrepreneurs.
12% is a real number! Ok on a Financial basis you need to think as follows
- 12% for $15,000 that values your company at $125,000 : does that seem right to you?
- if you think that feels wickedly low then key is how much value will you receive beyond a $15k discount and how do you get that part as clear and confident as possible.
- once you understand and have confidence in total contributed value you can better understand if its in the ballpark of value for you
- and then look at your other options to gain the same value (paying $15k more in cash and how else you'd gain access to investors etc).
- then due diligence as 12% is a serious impact on your future.
- one question that isn't here is $15k discount on what size of total project? It's not unusual to gain some discount off core Dev rates based on project size wp giving up anything.
Epilogue: My take on this is: without knowing all the details. It's sounds really really steep unless it comparable in total and real value to an incubator like effort (tech Stars) but even at that at 12% they better have a strong track record of delivering this type of added value time and time again. If you feel it is a incubator model than it's not about 12% for $15k, it's really about a whole lot more and you need to make sure that is well defined and agreed and or set double trigger vesting on a bulk of the 12% allocation (double trigger : time vest and action or milestone - i.e. They get some basis for the deal but earn up to the 12% by actions and results ).
- schwartz out