 |
 |
 |
|
10.08.08 Be Careful When Partnering With A Big Powerful Company  By
Dharmesh Shah The topic of partnerships comes up relatively frequently in startup circles. The common question entrepreneurs have about partnerships with Some Big Powerful Company (SBPC) can be reduced down to something like this: Q: "My startup has the opportunity to explore a partnership with a Big, Powerful company. What should I do?" (Short) Answer: Don't. Of course, there are exceptions, but on average, not knowing anything about you, your startup, the big company you are dealing with or the terms of the deal, I think this is good advice almost all of the the time. Let's dig a bit deeper into some of the analyis that I'd put into making the decision. One warning/disclaimer: I'm not a lawyer and don't play one on TV. This is not legal advice. If you're signing a deal, make sure to get competent counsel. Thoughts On Partnerships With Some Big Powerful Company 1. Beware The Distraction: Big companies have something you don't. Time. They can commit one or more people to the ongoing task of "exploring partnership opportunities". You probably can't. You have a day job (and probably a night job too). As such, the mere act of continued conversations with a big company to expore a partnership can be a major distraction for a startup. Even if it leads to something (which it usually doesn't), it takes a bunch of time and energy. Beware this distraction risk. You were warned. 2. PR Glow Lasts A Day, Lock-In Lasts Longer: One of the reasons big partnerships are so tempting for a startup is you envision the positive press. It adds legitimacy. It makes your startup feel more "real". You can almost feel the warmth and glow that comes along with signing a partnership with a big, powerful company. But, this glow is short-lived. On the other hand, even after the PR glow fades, the terms of your deal don't. There are a number of tricky deal terms that could be prolematic later. 3. The True Cost of "Right of First Refusal": Let's say Some Big, Powerful Company (SBPC) is interested in partnering with you. One of the likely reasons is that you're doing something innovative, and they "believe in innovation". Heck, they believe in it so much, the're considering investing in you or buying you. But, it's a bit early for that. So, as part of the partnership discussion, they ask for a seemingly innocuous deal term like "right of first refusal" on a sale. Here's how it works. A few years down the road, you find some other company (SOC) that wants to buy you for $50 million. Per the terms of your deal with SBPC, before you can sell to SOC, SBPC would have the right to look at the deal, and the option to buy you for $50 million. Now, at first glance, this doesn't seem like that bad of a thing. Continue reading this article. About the Author: Dharmesh Shah is a serial software entrepreneur. He is the author of the widely read startup blog OnStartups.com which focuses on advice and ideas for startup founders and management teams. Dharmesh is also the co-founder of HubSpot.com, a software company building applications that help small businesses transform their website into a marketing machine. |
||||||
|
| ||||||||||||||||
|
-- InvestNewz is an iEntry,
Inc. publication -- iEntry, Inc. 2549 Richmond Rd. Lexington KY, 40509 2008 iEntry, Inc. All Rights Reserved Privacy Policy Legal archives | advertising info | news headlines | free newsletters | comments/feedback | submit article |
