Embedded Systems · Equity contracts

Opinions welcomed on equity/revenue sharing negotiations

Doug Slattery Founder of AECS Consulting Inc. a DFW based startup developing IoT products for smart home & office.

August 19th, 2017

Hi fellow founders,


I started my latest venture on my own in late 2015 developing IoT solutions for smart home & office. I've invested to date some of my own money for parts & materials + some legal work for an NDA & trademarks, equating to roughly $10k, but have sweat equity approaching $100k of my personal development time involved.


The product is software based with some COTS SoC/embedded parts to run on, and revenue will be primarily from software comprising the systems (est. 80%) and there are no royalties (e.g. 30% app store) in play. The other estimated 20% revenue will be cogs with minimal markup to start.


I have entered into negotiations with a potential stake holder/partner who will bring an additional two full time engineers to start with for additional development work, with some wiggle room for additional developers as demand dictates.


There are no sales yet as we are rounding out development and entering field testing efforts at this time.


Not being a professional business person, I've been doing some homework and thought I would bounce where we're ending up in the process.


The potential partner is asking for a 10% equity stake and an additional 10% of gross profit (not revenue) to cover his operating expenses. This was his counter to my offer of 10% equity + 10% net profit + 15% gross profit capped at his operating expenses. On the surface, this seems to me to be fair and reasonable. I'm expecting soon to be incurring more of my own operating costs as we go to market and want to be careful not to give up too much this early in the game.


What have been your experiences in situations like this, and how did it work out? What would you have done differently in hindsight?


Thanks in advance.

- Doug

"Nothing is impossible if ImPossible"