Business Execution · Licensing

Revenue Share / Technology JV Thoughts?

David Rueter Empowering businesses to improve and get lean through technology and best practices.

January 18th, 2018

Our company sells a powerful, configurable software platform that can manage business data and business process execution in any kind of business.

One thing that we do with our platform is to pursue "Software as a Business" deals, in which an entrepreneur who wants to sell software to a particular industry can license our technology and have us configure the solution using our robust, proven platform...resulting in a better/faster/cheaper solution for the entrepreneur which compared with either outsourced development or in-house development.

We are currently in discussions with two such opportunities, and I'm curious as to what you think the financial value of such a deal might look like.

Suppose creation of NewCo by an entrepreneur (not me), for the purpose of selling a B2B software solution to a particular industry. Suppose target selling price of finished product to be $5,000 / mo per client of NewCo, with an opportunity to sell say 10 clients in year 1--i.e. a $600,000 gross revenue run-rate for NewCo in year 1, with bigger opportunities in future years.

Suppose that we (technology provider to NewCo) provide the complete solution to NewCo exactly to their specifications, at zero cost to NewCo, and NewCo can then sell the solution.

What percentage of revenue do you think we (technology provider to NewCo) should be entitled to?

NewCo is simply reselling what we created. But NewCo did see the opportunity, define the product, formed the company, sold the product, etc.

I see the technology in this case as a cost of goods sold.

What would be a reasonable % of selling price for a turnkey industry solution that NewCo could sell?

The alternative to using our technology would be for NewCo to outsource development or build in house, neither of which do they have the expertise or capital to do successfully. Our approach lets NewCo succeed with minimal risk. And, we allow NewCo to own the intellectual property (subject to licensing terms, not unlike building a product on top of Microsoft SQL).

What is this technology worth to NewCo as a percentage of revenue?