Partnerships · Partnership agreements

How to structure a partnership agreement that we can both agree on?

Anonymous

October 18th, 2016

I am seriously considering joining a late stage start-up as a 25% active partner. They are already generating just under a million dollars per year of revenue. The current owner would like to see us close a partnership deal within 2-4 weeks of me working there. I on the other hand feel I really need 1-3 months of working there to fully understand the business, its potential, get to know my future partner as well as the current small team of 4, before I commit to any long-term partnership agreement and investment. Any suggestions on how to structure a deal that we can all agree on? 

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Scott McGregor Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.

October 18th, 2016

Negotiate a 90 day statement of work. At the end of 90 days, if both parties are satisfied you will exercise an option in the contract continue to work together and you will use your new found understanding of each other, both good and bad on both sides, to create terms appropriate for a long term agreement. If either one of you doesn’t want to continue, then have an agreed upon payment terms for the work performed for 90 days. It should probably be either cash or debt, since equity would ensure a longer term relationship between two parties where one of them doesn’t really want to committed to it long term.

Hambirrao Patil

October 18th, 2016

Hello @Scott, I think we have to understand first level of partnership and according to that level we’d like to be included the conversations where the future of the business gets determined, and have a real voice in those conversations. All the functions that support the whole organization - it also makes sense from an organizational perspective: having HR, finance, legal, IT, etc. weigh in on big decisions earlier in the process helps to make sure that all critical factors are taken into account.
  • Really understand the business.
  • Get out of your box.
  • Be useful in a big way.
  • Listen.

Finally; Find out if they want partners. Find out what kind of partnership they would be happy with. Decide whether you would be happy with that.
If not, re-think your plan. You have two options: leave and make one of their competitors rich or negotiate some kind of bonus scheme. I would suggest a percentage of sales. Get it in writing before you do anything.