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Startup crisis. Dorm room style.

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Startup crisis. Dorm room style.

#1

Post by jfornear »

This is a joke compared to drinko's story, but I've really gotten myself into a bit of a bind lately. I'm hoping you guys might help me. I'll start with the background story...

One of my roommates is a film student, and he is taking a class in the film school on Internet media this semester. The class is brand new and has never been offered before. They basically spent the entire semester going over web 2.0 buzzwords (blog, wiki, mash-ups, news feed, beta, social bookmarking, social network, RSS, etc). They were also assigned to come up with a "cool idea for a website" for their final grade, and they are actually expected to develop this site.

My roommate's group quickly found they had no idea where to start. He came to me with some questions, and at first I was glad to help him. I started by walking him through the steps involved in purchasing the domain name and hosting plan. Then he started asking more questions, and I eventually had to tell him that I didn't have time to help him all the time and that the class was just ridiculous.

A week later he tells me that he wants to pay me to work on his project. All I would have to do was make a working prototype. At the time it didn’t sound like a bad idea, and it sounded like fun. I thought I could make some money and help a friend out, and I would be able to copy and paste code from other things I have worked on to cover the majority of the project. So I told him I would charge $20/hr, and I agreed to a cap of $400 since it was coming out of his pocket.

Then a few days later, he comes into my room with a stack of papers. It turns out to be a 17-page contract that his dad, who happens to be a lawyer, wrote up. The contract would give my roommate full ownership of the code, ip, license, etc, and all for only $20/hr with a cap of $400. It also states that I would not be a partner or have any equity. I scan it over and quickly decide that there is no way I am going to sign it (and I still haven’t). Not to mention that I was just scared of a 17-page contract and feeling a little outgunned when his dad is a lawyer.

So a week later, he doesn’t seem to care that I didn’t sign his dad’s contract, and he pays me for the first couple of things he needed to meet in-class deadlines.

Now, the project is looking really good, and I’m starting to think that their idea combined with my awesomeness might actually have potential. What should I do?

I feel like I am too easy to take advantage of, and I wish I knew the rules on the legal side of things much better.

Re: Startup crisis. Dorm room style.

#2

Post by rms »

Wow, this could get really complicated if you end up building something people want. Before it gets any further, you need to have a talk with your partner and his group members and talk about what they want to do with the site after the class is over and if they're willing to give you significant equity. If they don't give you equity, and you cease development after 20 hours, make sure that you are allowed to launch your own competing startup. You'll have to recode it, but make sure you're allowed to compete.

If they do give you equity, make sure they're not only doing it because otherwise you won't do the project, which is the situation the last crisis poster had. If every member of the group is not really happy with the arrangement, you will have problems.

Re: Startup crisis. Dorm room style.

#3

Post by [deleted] »

rms wrote: post #2

Wow, this could get really complicated if you end up building something people want. Before it gets any further, you need to have a talk with your partner and his group members and talk about what they want to do with the site after the class is over and if they're willing to give you significant equity. If they don't give you equity, and you cease development after 20 hours, make sure that you are allowed to launch…

[deleted]

Re: Startup crisis. Dorm room style.

#4

Post by musiciangames »

rms wrote: post #2

Wow, this could get really complicated if you end up building something people want. Before it gets any further, you need to have a talk with your partner and his group members and talk about what they want to do with the site after the class is over and if they're willing to give you significant equity. If they don't give you equity, and you cease development after 20 hours, make sure that you are allowed to launch…

rms, why do you think jfornear will need to recode? (S)he hasn't signed over the copyright, and there is no mention of it having been discussed in the verbal agreement. And the bulk of it was copy and pasted. The 'customers' cannot copyright the idea, although they may have explicitly stated that part of the discussion consisted of trade secrets.

This is rather different from the Facebook case, where there was pre-existing code when Zuckerberg was engaged.

If the father really thinks it's a valuable proposition, it's in his interest to clean up the intellectual property situation sooner rather than later. I'd have a friendly word with them to say you think the whole project is much more likely to succeed if you've got equity as well. Once you've got an agreement on terms that you all feel are fair, that's the time to get the lawyers to put it into writing.

If they really want to get all legalistic on you, first think whether you want to be in business with them, second you could suggest that they pay your costs to hire your own lawyer.

Re: Startup crisis. Dorm room style.

#5

Post by thaumaturgy »

If you're going to be heading in to any kind of adversarial situation involving contracts, then you're probably already outmatched; your roommate will go to his dad, and then whether you've drawn up your own contract or purchased one or consulted with an attorney of your own, you'll still be staring down the barrel of a lawyer whose son is involved. Lawyers love nothing more than billable hours, except presumably your roommate will getting a pretty healthy chunk of them for free.

So, I don't think you can make this work out.

But, if you wanted to try anyway, I'd suggest drawing up your own contract as a counter-offer. They aren't hard to write, and they don't have to be long. They just have to describe, in very plain language, what work you'll perform, what you expect to receive in return, and what to do if things don't work out.

Re: Startup crisis. Dorm room style.

#6

Post by rms »

musiciangames wrote: post #4
rms wrote: post #2

Wow, this could get really complicated if you end up building something people want. Before it gets any further, you need to have a talk with your partner and his group members and talk about what they want to do with the site after the class is over and if they're willing to give you significant equity. If they don't give you equity, and you cease development after 20 hours, make sure that you are allowed to launch…

rms, why do you think jfornear will need to recode? (S)he hasn't signed over the copyright, and there is no mention of it having been discussed in the verbal agreement. And the bulk of it was copy and pasted. The 'customers' cannot copyright the idea, although they may have explicitly stated that part of the discussion consisted of trade secrets. This is rather different from the Facebook case, where there was pre-ex…

I think this situation would work out fine if it weren't for the unknown group members -- it seems likely that the OP and his friend with the lawyer dad are on good enough terms to make it work. I get the impression that the other group members don't really care about the project, because they aren't putting up the money to hire the OP. But if the project becomes successful, they could truthfully claim that they were involved with the project from the start.

It doesn't sound like anyone wants to be overly legalistic; it sounds like someone's father is an aggressive lawyer type that saw an opportunity to negotiate the best possible terms. The OP and his partners need to draft some type of agreement. I don't think there is any need to involve lawyers immediately, wait until you incorporate. For now, just get something on paper you all agree with. Send it to friend's lawyer dad to legalize if you so desire. Get a free corporate registration and registered agent from him if you can. Only a Delaware C corp.

Re: Startup crisis. Dorm room style.

#7

Post by rms »

Also, that really sounds like a ridiculous class. It's part of the film school? How could they expect mundanes to do programming (even HTML/CSS) in a class with no programming prerequisites? Is your friend on the only team without a CS major?

Re: Startup crisis. Dorm room style.

#8

Post by [deleted] »

thaumaturgy wrote: post #5

If you're going to be heading in to any kind of adversarial situation involving contracts, then you're probably already outmatched; your roommate will go to his dad, and then whether you've drawn up your own contract or purchased one or consulted with an attorney of your own, you'll still be staring down the barrel of a lawyer whose son is involved. Lawyers love nothing more than billable hours, except presumably you…

[deleted]

Re: Startup crisis. Dorm room style.

#10

Post by jmacd »

You agreed to work on this as a contractor, for pay. You aren't being taken advantage of if you agreed to a price ahead of time (cap or no cap).

Just because they have a good idea doesn't mean you have to be involved, there will be other great ideas that come your way as well.

And hell, if this is successful, believe me: you don't want to be in business with the kind of guy who a) goes to his father for help on such a simple thing and b) would think a 17-page contract was a good idea in any way.

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