Jan 8 2007 by Brad

Is This Offer a Good One for My Company?

We’ve gotten a slew of questions like the one below.  It’s impossible to give a precise answer to “is this offer a good one for my company?” when all we have is a paragraph or two to go on.  So – like all good Aesop wanna-be’s – we’ll try to pull out one or two salient points from the parable to help make everyone wiser.  While the answers will provide some benefit, hopefully our thought process in sizing up the question will provide even more.

Question: I’m working on AJAXifying and otherwise adding “web 2.0” functionality to my site, but there’s a lot of work to do and I am no software engineer.  Suddenly I’m drowning in competitors, but still maintaining a solid number two position in the market, from publicly available data (which is sparse).  I haven’t gone out looking for investors, but they often come to me. The most recent offer is with a new company working on the “incubator” model. They want 75% of my business in exchange for putting their full-time programmer and their full-time accountant onto my project for three months. I have not seen the resumes of these people. They will also pay me a salary which is about equal to my current net revenue. I am inclined to turn this offer down. Is this wise?

Answer: Unless you want to sell your company and move on, it would be very wise to turn this offer down.  First of all, the offer sounds more like the “incubator” is buying your company – with you retaining 25% of the equity and getting a salary equal to your current revenue.  The effective value you are getting for the three months of full-time programmer and accountant is – at best $50k (1/2 of a full time equivalent).  Is this – plus the revenue you are getting from your business (and it’s unclear whether they are giving you this for 3 months, a year, or the rest of your life) – worth giving up 75% of it?  While only you can answer this, it seems like a very fishy deal.