A competitor buyout of our ‘talent’ vs our ‘product’. How much $$?

We are three female founders in fashion. I say that first because we’re proud and there should be more of us. I am in tech, another is in product/biz/marketing, and the other is finance/legal.

We built a product for the fashion industry … had two successful pilot programs with big labels to verify the product/market. Don’t yet have paying clients. Been at it for over a year bootsrapping ourselves mad. Ran out of bootstrap funds, can’t raise money due to lack of traction (that’s been the feedback).

Came across a competitor and reached out … thinking was that we want to keep innovating in the category and if we can get bought out and paid to do it for another company, then that’s better than closing things down.

Competitor is asking what we want, but doesn’t need our product, they want our talent/expertise. Is it fair to add up all the hours spent over the year or so, times it by $100/hr and ask for that number as a talent buyout? Maybe 1/3 in cash and 2/3 in stock options?

  • Or should we think of valuing ourselves based on competitive advantage we could take elsewhere (ie a competitor of theirs).. vs valuing on hours spent. If so, how the $%@& do we do that and arrive at a figure?

    • +1000 (female founder) if they want your talent, they want your talent not the added responsibility of your past year’s failure.

      So now, you have to ask what are you going to bring to the table. Does your brand exist still? Does it have any value? Can it have future value? Will you continue to innovate under this brand name or will you work directly for the person that sees your potential?

      If you guys want to remain working as a team, contract at a reasonable rate to innovate under your name for this person. This has nothing to do with your past failures or future successes. You’re baaically on contract.

      Now, the terms of the contract – a dollar amount that equals the fair market value of your salaries

      – 80% ownership in what is created/innovated under this contract for them. (Because you’re in fashion, I’m sure there are heavier upfront and marketing costs than a traditional tech startup if you’re dealling with actual product. If this is the case, you will want to take 40% to ensure they are incentivized to take your innovations to market.) I don’t know all your numbers so only you can answer this.

      The truth is, you need a lawyer, but if it were me, I’d want my salary and partial ownership in whatever I brought to the table.

  • How are you people valuable — if you can’t find a way to create traction for your own product ?

    this is what i’d be thinking to myself…if i was going to be dishing out money.

  • This looks like a run-of-the-mill talent acquisition to me. Perhaps they already know you’re running out of cash and think they can get you cheap. Perhaps they just need good people and are willing to pay a premium for the three of you.

    The business is probably valued at close to 0, but both parties probably want to pretend the business is worth something. Recruiting good people takes a lot of time and money, so if they really want to hire you that means you have some leverage.

    If I had to pick a number I’d say 600k-1.2M total (cash + stock options)

    As for the deal structure, take a look at this: http://www.quora.com/What-is-a-typical-deal-structure-of-an-acquihire

    • I hope you are not a financial adviser.

      Paying 1.2 Million for what? For 0 (zero) revenue? For 0 customers?

      If she was worth paying 1.2 million, wouldn’t you think that people like her work (clothes) so much to actually pay for it?

      Apparently the customers don’t believe that her work is worth any money.

  • You are worth what the market would pay for you. (Other calculations are vanity)

    $/hr could be much more or less than your worth. Try talking to few similar companies. It possible some company would start bidding on you.

    Get an estimate of you market value, add 30% and give them that number.

    • “You are worth what the market would pay for you.”

      OP stated: “Don’t yet have paying clients.”

      => worth 0 €

  • It depends if the biz/dev person is CEO. If it is they might want to have a deal that involves both of you since you’re the valuable tech person. If you’re the CEO, they just want you.

    Either way your finance person (unless she’s CEO) will get nothing.

    Acquirers structure their aqui-hire deals to favor their new employees.

    You’ll probably get very little upfront, but may get stock/bonuses that may be worth 500-1M over a vesting period.

    However if the “competitor” is another startup, be prepared to get it mostly in stock.

  • If you don’t have paying clients you don’t have a company. It’s a hobby.

    You are looking here for a salary (a job), not for a acqui-hire, because there’s nothing to acquire, no sales, no products, no nothing?

    Let me do the DCF for you: 0 EUR earned, 0 EUR next year, in fact probably some -few k for overhead cost. So you’d have to pay me to acquire you!

    “and there should be more of us”

    Right, because only men are working in the fashion industry?! And why should there be even more women/less men in fashion? Pretty sexist.

    Again, looks like you are looking for a JOB. So depending on your fashion skills (you don’t have a brand, otherwise you’d have paying customers) probably something between 10k-100k. If you are a star even more, but you have no paying customers.

    “Is it fair to add up all the hours spent over the year or so, times it by $100/hr and ask for that number as a talent buyout?”

    No it’s not, it’s ludicrous. Welcome back to reality.

  • Sounds like you’re pretty comfortable in letting your product/company die in the process.

    Are you – as the tech person, with the most effort/sweat invested in the current product – interested in developing your product further?

    How “successful” were your pilot programs with these large companies? Successful enough to get someone to PAY actual $$? To commit, to sign, to put a deposit?

    No one seems to be proficient in “sales” (something I’d think would come from the “product/biz/marketing” person) in this scenario.

    Can you sell your product/Intellectual Property to another company/competitor before going through with the acquihire?

    Source: sole tech founder in the fashion space

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