I'm talking with a friend about moving his father's successful desktop app into the cloud. I would like to know what you I should ask for in return.
A few facts:
- The app performs scheduling for a consumer niche
- Been around for 15+ years with a loyal customer base, top 3 SEO results for relevant queries
- Downloadable desktop application with a once-per-year licensing fee, no auto-renewal or subscriptions
- Many complicated scheduling algorithms to rewrite, but the rest is not very complex
- None of the old code is useable outside of the logic it contains
- The owner is getting old and wants out badly of daily operations. Nothing is off limits. People have already turned him down on this offer.
- It did $90k this year in passive sales, mostly returning customers that have used the product for a long time - Multiple interests of acquisition by larger players in the space pending a move to cloud
- He wants me to take things over essentially upon finish
I consider this to be a six month re-write at a minimum, at a time when I'm feeling very busy with other companies and projects.
What would you ask for (equity + cash) to do this?
My going idea right now is ~35% equity with a $5k per month x 6 months building fee. I've considered bumping that cash option up and offering a 'payback' based on earned revenue once it's complete, but I don't know - I tend to constantly undersell myself and my abilities as a very capable full stack developer.
A friend warns me that I need a path to ownership plan. I don't know what that would look like.
Any help is appreciated.
First thing no matter what, define the job and figure out how much it would cost if the work was being performed by a professional firm. If that cost is $100k including profit, then that is your base cost and you need to figure out how you get at least that value out of the business.
To be fair, the above is only the way most people think when trying to make money. Wealth is not built that way, but paying the bills can be. IMO if you think this business is profitable, and can be grown and leveraged better than you need to think about permanent equity stake or a leveraged buy out of some sort where you own it all. A business doing $90k a year, may sell for $30k or may sell for $900k, just depends on the factors of the specific business and opportunity. If you want to own it, then look at leveraged buy out ideas, these work in a lot of small business transactions and generally let both the current owner and the new owner have skin in the game at the same time so everyone is working for the best outcome. But if this isn't a business you are going to want to spend time really growing and working in every day, then just do the consulting + profit route and be done.
I did a few e-commerce deals where I paid for their development with my time and my teams time but I took a percentage of their profits until my cost + profit was paid off, and then I still kept getting a smaller percent of profits until some next milestone since I took the risk and they had little risk. e.g. I might get 30% of profits until I am paid back, and then 3% for 5 years with a minimum of $X/year guaranteed. These types of deals are good when you don't want to be in the business but you are taking risk and they are getting to leverage you/your time and/or your money. The percentages are all super dependent on the business, types of deals, number of transactions, deal size etc.
There are almost an infinite number of ways you can structure these types of deals to be fair. You have to define what you want to be doing first, then you can figure out options.