Is your startup lacking funds to finish a project?
Many startups were facing the same problem and some of them came up with an easy enough solution: giving equity away to a web development company to finish the project. Such a move is not solely related to financing issues, some startups decide to bring these companies into play early on into the project for convenience sake. However, one shouldn’t rush into reaching a deal, since a lot is at stake, both for the startup and the web development company. Adhering to the eight simple rules we list here, any startup can come up with an alluring offer for the web dev company to accept the deal and work for an equity:
The startup should strive to suggest a minimum viable product that is as simple as possible. An intricate MVP could doom the project to failure from the very start by driving away the web development company altogether.
Make sure that the specification is done by a knowledgeable person. A layman on the job can only make matters worse since a bad specification could spell disaster! If you put an expert to the task, developers will know exactly what their job is and startups can keep track of their work. Specification should really be a surprise-free zone.
Having done the specification right, the startup can estimate the total cost of the project and the size of the startup’s equity the web development company gets. If the equity isn’t large enough, the web development company might reject the project altogether. They have to feel satisfied in terms of the compensation they receive for the risk they take.
For a startup wishing to legally protect their ideas it’s a must, but web development companies might not be soon keen to sign an NDA. The problem is that web developers deal annually with hundreds of projects which are bound to be similar. This could cause them problems with future clients, so they are reluctant to sign an NDA. The best solution would be for the two parties to reach a mutual agreement on the type of NDA needed or whether it is wise to draw it up in the first place.
It has to be kept in mind that in this case, web dev companies act like investors. They will not exclusively look at the quality of the project offered, but other business related issues as well. The startup has to be ready to prove they have a team that can make the idea happen. They have to answer numerous questions, such as how big can the company get or what are the principal risks to the business.
It is highly likely that major web development companies will not consider the small equity worth the trouble. Occasionally, however, these companies do have developers with a low workload and they might consider assigning them to a startup’s project. Startups have a greater chance of success approaching medium-sized web dev companies whose policy is more flexible.
Although the project is handed to the web development company, it is not wise for the startup to give them full control. They should delegate a team member to oversee the project and help the developers if case any problems occur.
In order to entice the potential web development company, a startup can offer them to maintain the application. This will normally occur after the next round of investment. The web dev company would service the app and get paid for it. In this way, they would effectively get a new client, thus lowering the initial risk level.
Finally, it is important to remember that a lot is at stake, even the future of the entire startup, when it comes to hiring a web development company. None of the rules listed are here are on their own a deal-breaker. However, if a startup bears in mind all eight points, they could prove to be a deal-maker for them.Tags: Startups, Web Development, Equity, MVP, NDA