Forums: Discussions for entrepreneurs and small business.

Hi all,

  It is great to see such an active community of entrepreneurs helping out each other. I`m posting here to get some advise regarding partnership agreement in a collaborative product development.

   We are a startup company in High Performance Computing technology. We are interested in collaborating with another startup company in Financial Services. We both have decided on a project that sounds promising to both of us.

   However, we are yet to work out numbers and agreement. The work involved in development of the product is nearly equal for both the companies. However, our company will have more time and money investment for the maintenance and upgrades.

  We are a very young startup company that we are yet to officially launch in a full scale. The other startup company is in business from past 2-3 years in the financial services with some moderate revenues.

   I need advise regarding what should be the agreement like ?
I. Regarding  Intellectual property rights:
a. How can the IP rights be effectively preserved ?
    The project involves code development by both the parties and integration of these codes.

a) Should it be based on the revenues the product brings in ?
    Here,  I fear that there would be numerous issues regarding cost of investment by both the parties etc.; accounting  and  probably it might result in  mistrust  etc.
Further, I do not have a very clear idea of the market. They see a great application of the product. I too believe the market size is great but do not have a concrete idea.

b) I would prefer asking for one time payment and that maintenance costs to be collected from users based on usage. However, the other company is also a startup company and may not agree on the one-time payment. That would be a serious hit on their cash reserves.

I request members to advise me on this situation. Further, if you can provide some examples, probably, I can better learn making such deals.

Thanks,
Chaks

www.hipercube.com

Chaks,

There are numerous considerations in your situation, and the financial/legal model can be handled a few different ways.

Who will be responsible for the actual licensing and distribution of the product to customers?  The party assuming this obligation should reap some additional financial benefit due to the resources needed.

Regarding IP rights, does your company plan on using the IP for any future work?  Having joint copyrights amongst the parties may be an option, but your future plans for the IP you`ve developed for the project may affect those rights.

When will the product be ready for prime time, and how will users pay for it (e.g., one-time license fee, subscription based model, etc.)?  These answers will also help answer your question about how you should be paid for the work.

I`ve helped other high-tech clients in your situation, and this stage of the discussions is absolutely CRUCIAL to ensuring the deal goes down right.


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