Startup offering shares for my technology -how to evaluate?

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In summary: It sounds like you have massive leverage. The worth of what you have is solely based on future sales, so I would still go for a percentage and offer a few trouble shooting days software wise, and whatever else you want basically. You'll have to haggle face to face, there is no other proper way to do it from my experience, I personally would start at 40% and go down to 20% if pushed. They still have a hell of a lot of stuff to do by the sounds of things, and organising manufacturing is unbelievably expensive and time consuming. I don't use the word unbelievably lightly either having done it myself.
  • #1
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Long story short, I built a prototype of a medical device in about 2 months, and it turns out a local start-up company has been working on something similar for over a year. They want to "buy" the prototype in exchange for some share of the company and a (probably underpaid) position. Since I already have more reliable employment offers for after graduation, and my product would be critical to their success, I was planning to negotiate for something better.

However, I'm not sure what measures to look for in evaluating the company, what to ask for, or how to determine what other investors would pay for my product. I'm willing to do a lot of research on this, but I'm not sure where to start. Could anyone point me in the right direction?

So far, I was planning on asking for a reasonable equity share (similar to the founder's share) , investor contact, and a VP title. Is this reasonable, or should I be looking for more?

If this is the wrong sub-forum, I apologize, but the topic didn't seem to fit in any of the others.
 
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Generally for a prototyped item the renumeration is 6% of wholesale cost. If you already have regular buyers and have done extra work finding manufacturers you'll have to just add those figures on top to find the total worth of your product.
 
  • #3
Thanks for the reply!

Perhaps prototype isn't the right word. I'm not offering the physical prototype, but rather the design of it with source code. It's primarily a software product. This product is what the start-up set out to design, and to this point they have been unable to make one work, which is why I think I can leverage more from them.
 
  • #4
Maybe you can lease it. That way you keep the rights. But, if you haven't patented it...
 
  • #5
It sounds like you have massive leverage. The worth of what you have is solely based on future sales, so I would still go for a percentage and offer a few trouble shooting days software wise, and whatever else you want basically. You'll have to haggle face to face, there is no other proper way to do it from my experience, I personally would start at 40% and go down to 20% if pushed. They still have a hell of a lot of stuff to do by the sounds of things, and organising manufacturing is unbelievably expensive and time consuming. I don't use the word unbelievably lightly either having done it myself. Make sure you can access the sales figures as the temptation to lie for them is immense. Also put yourself in their shoes. If you had to buy an idea and 50% of your profits were going to someone who was basically doing nothing is just not on - not from a maths perspective - but from a psychological one.
 
  • #6
Same-same said:
However, I'm not sure what measures to look for in evaluating the company, what to ask for, or how to determine what other investors would pay for my product. I'm willing to do a lot of research on this, but I'm not sure where to start. Could anyone point me in the right direction?

If you're not sure what you're doing and half-sure of what you have and what it's worth, which is what seems to be the case, then I would advise contacting a patent attorney, someone who who has experience in these matters and has the legal resources to enforce any deal that's put together. If your invention is as significant as you present it to be, then going into a negotiation on your own to save a few bucks is foolishness.
 
  • #7
A good point above. Even appoint a neutral intermediary?
 

1. What factors should I consider when evaluating a startup's offer to purchase shares of my technology?

When evaluating a startup's offer to purchase shares of your technology, there are several factors to consider. These include the company's financial stability and growth potential, the current market demand for your technology, the terms of the offer (such as the percentage of shares being offered and any potential restrictions on selling them), and the overall fit between your technology and the startup's business goals.

2. How can I determine the value of my technology in the context of the startup's offer?

There are various methods for determining the value of your technology, such as conducting market research, analyzing the potential revenue and cost savings it could bring to the startup, and comparing it to similar technologies that have been bought or licensed in the past. It's important to also consult with professionals, such as a financial advisor or intellectual property lawyer, to get a more accurate valuation.

3. What are the potential risks and benefits of accepting a startup's offer for my technology?

The risks of accepting a startup's offer include the potential for the company to fail and your shares becoming worthless, as well as the loss of control and potential future profits from your technology. However, the benefits can include financial gain from the sale of your shares, the opportunity to work with a potentially successful and innovative company, and the potential for your technology to reach a larger market.

4. What should I look for in the startup's business plan and team when evaluating their offer?

When evaluating a startup's offer, it's important to thoroughly review their business plan to ensure it is well thought out and realistic. Look for a clear understanding of the market, a solid revenue model, and a plan for future growth. Additionally, it's important to evaluate the team behind the startup, including their experience, skills, and track record of success.

5. Are there any red flags to watch out for when considering a startup's offer for my technology?

Yes, there are several red flags to watch out for when evaluating a startup's offer. These include unrealistic or overly aggressive growth projections, lack of a clear business plan, a team with little experience or a history of failed ventures, and a lack of financial stability or funding. It's important to thoroughly research and vet the startup and their offer before making a decision.

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