I am an unusual position and would appreciate some guidance. I am a senior partner in a small software development and consulting firm. One of the things we do is a SAAS product geared towards corporate and retail barter operations. We typically sell a perpetual license and add a support contract to create a continuous revenue stream.
We were approached with an offer to become a "partner" vendor for a new startup that hasn't even been incorporated yet. We are offered equity in return for the license and 3 year support contract. The founder has interesting ideas, but he wants to get proof of concept working before raising capital, and our software would allow just that. So effectively we're at the very inception of the company with no valuation and little assurance. I am looking for the best way to structure that relationship in a balanced and transparent way.
Here's my current chain of thoughts:
- This is not a "cofounder" type of scenario as I wouldn't be personally employed by that company or involved in the operations outside of supporting our product; instead we should act as a "seed" investor,
- With no valuation on the table, we can use SAFE or convertible note to defer pricing to be determined later by professional investors but that leaves uncertainty if the owner never takes the company to Series A; perhaps the convertible note with a discount and a cap is a safer option as it would allow us to ask for cash if investment round doesn't happen in say 3 years,
- We should aim for a board seat and expect to participant 1-2 hours a week making sure our investment is safe and secure,
- Some sort of "vesting" would be logical to have to make sure we only get full equity when the company gets to the "proof of concept done" milestone; I don't think vesting is possible with a note, perhaps we can structure the total investment in annual stages as separate notes somehow.
I am interested in any critic and suggestions on how to structure this deal better. Thank you!