Ask HN: We are shutting down our startup, I get our code. What now?
382 points| sad_cofounder | 6 years ago
My co-founder recently decided to shut the company down, focusing on what he/she does best rather than being reliant on tech/design loops by making our amazing designer create a Shopify site that he/she can manage him/herself.
Without going into details, it is fair but we will need to have serious talk once everything has settled so I can move forward.
Anyhow, as my payment for these past years, I get to sell whatever we have created, code wise, and get the dough for it.
The problem is that I have no clue how to properly handle a sell like this.
There is a bunch of new startups that has recently popped up, doing what we initially did with a caveat; they lack an app for it, currently hustling to make things work. So there might be a pretty good possibility for us to sell it.
To give you an idea what we are doing; an React Native app that sell and connect a very specific type of workshops with costumers over custom WebRTC Video chat(fork of React Native-based Jitsi Meet). What I can tell, I haven't seen another custom Jitsi-Meet integration yet that gives the ability customize the UI that we have.
We use Firebase as our backend and Stripe as our payment integration. Data entry / workshop scheduling is managed using a custom built CMS. We have custom emails + in-app notifications work through Firebase Cloud Functions.
Should I contact these startups? Anything I should do first, legally wise?
I'm clueless.
[+] [-] davismwfl|6 years ago|reply
Software without a market and customers already using it is basically worthless. If you were in a hot market and had clients a competitive startup might offer some decent money but it’d be mostly for the customer list.
One time that software can hold value is when you have a unique patent or have invented something that is truly new and revolutionary. Think scientific software algorithms or long standing problems where your code can be integrated quickly and solve a problem that isn’t something people can easily replicate with just some time.
For the most part the sounds of your code is that other people could replicate it fairly readily with just some time. I am not criticizing anything, just saying it doesn’t sound like you invented anything truly new. More like you guys put things together in a way to solve a problem which likely had value to people but not enough for the software to hold substantial value without a market and user base.
You can of course try and maybe you’ll get lucky. But I’d likely say you’d have better luck carving out a library or a complete product and open source it. Then sell consulting services around it and maybe host it etc.
The costs are sunk, your best bet is trying to use the software as leverage, not trying to sell it outright. At least that’s been my experience when I had companies fail before we had real traction. I did have one offer for like $5k on software we spent ~600k developing. I held the code and integrated parts into other projects that went on to make me money.
Good luck, and maybe you can prove my experience isn’t true today.
[+] [-] streetcat1|6 years ago|reply
So every software STARTS as software without customers.
I assume that the market exists since this should be the reason for the project.
No code can be replicated easily. This is a myth spread by non programmers.
Software patents are useless since the Alice case. I.e. you cannot really patent software anymore.
Since I am not sure about the current state of the project I cannot give advice, but I would try and start the business actions asap. I.e. just continue with the original plan.
[+] [-] hinkley|6 years ago|reply
So the question is what's the 'hedgehog' in the Venn Diagram between the old tech, the thing they would be willing to work on next, and what might be available/they can do themselves.
[+] [-] flurdy|6 years ago|reply
But the skills to consult and integrate other companies to do the same if priceless. Actually no, it is $1000 per day...
[+] [-] primitivesuave|6 years ago|reply
[+] [-] Accujack|6 years ago|reply
That takes some customization, but he's not talking about a software product, he's talking about what amounts to a professional services integration of several existing products. Consulting gigs like that can make you money for your time, but the end result is too specific to the situation with too few lines of original code to have much/any value.
If OP hasn't been paid for his work and it's being suggested this software is his pay, then I'm going to agree with other posters and say his co-founder is just dumping him and walking away with anything worthwhile, including the percentage of the corporation OP had which might be worth $$$$ or $0 in the future depending and leaving him with worthless code... and if there's a no-compete written into the sunset agreement for him, he probably can't even use the code, sell it, or consult with it.
[+] [-] koheripbal|6 years ago|reply
...and so it becomes a huge gamble to pay for technology that doesn't have an active an immovable revenue stream.
[+] [-] trollied|6 years ago|reply
[+] [-] wolco|6 years ago|reply
For the price of hiring a react developer to make modifications + the cost you are better off letting the react developer only build what you want
[+] [-] aazaa|6 years ago|reply
It sounds like your co-founder is trying to fire you and leave you with the code, which is not needed because it can be done with Shopify now.
> Should I contact these startups? Anything I should do first, legally wise?
Don't sign anything regarding the breakup of your company. Consider your founding documents very carefully. What do you own according to these documents?
The breakup of a company is a negotiation. Maybe not a very pleasant one, but potentially every bit as important as the founding negotiation.
You will probably want to run your question by a lawyer.
[+] [-] jdmichal|6 years ago|reply
OP says they value the friendship, but friends don't screw over friends like this.
[+] [-] C1sc0cat|6 years ago|reply
[+] [-] chriscappuccio|6 years ago|reply
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[+] [-] gkoberger|6 years ago|reply
As far as your options, I agree with everyone here who says you likely won't have much luck selling the code. People rarely buy code; they buy customers or revenue. It doesn't seem like you have either, and I don't have much to add there.
BUT! You do actually have something you can sell... your experience. Your last two years weren't a waste. We've hired founders at my company before, and they're great... they have an amazing mindset, are great at making things happen, and tend to be ambitious. These two years of experience are going to make you very valuable to someone. Like you said, there's a bunch of companies out there doing something similar. They don't need your code, but they'd love your experience. You've spent years understanding the space, thinking about the market, and getting a first-hand technical understanding.
I'd think of it that way... this is an amazing resume for you. You'll be able to turn this into money, just not the way you're currently thinking!
Good luck :)
[+] [-] sixtypoundhound|6 years ago|reply
Speaking as someone who not only invests in websites but authored some early studies on the fair value of micro-sites (back in 2012) that deal is utterly bogus.
The value of the business is in the traffic and audience, not the code. To be honest, getting rid of the legacy code and moving the site onto my standard platform is a major goal of the early integration process. I do not pay for code (sorry).
What you have been handed is the back-end of a potential product, the market value of which is unproven (since you haven't been given the customers). While I'm sure the technical quality of the work is excellent, there are multiple strikes against it from a business valuation perspective. Fight for your share of the store profits.
[+] [-] gkoberger|6 years ago|reply
[+] [-] cal97g|6 years ago|reply
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[+] [-] sad_cofounder|6 years ago|reply
* The company will be completely shut down, no more b-corp.
* I own < 50% of the company
* My co-founder will continue based on our last pivot minus my technical knowledge.
* I would love to be able to chill on this for a while, but my co-founder want to move forward and close our old business down by the end of this year so that he/she can close all tax/business stuff.
* My co-founder invested money to pay our designer / product owner, I invested my time.
* We had no real customer traction due to our (now in retrospect, bad) decision to pivot away from the app we worked hard to release, not maintaining it and work on v2 of it instead. It sucks because through my co-founder, we had serious reach through social platforms such as Instagram, but we also knew the initial business model couldn't scale so we had to pivot.
* Deep inside I knew our code would be a hard sell and I see the bigger picture now. Thank you all for zapping me out of it. I do think that cross-platform WebRTC integration has some value, but as some of you point out, my knowledge is probably more valuable than the code it self. I will reach out to all of you who have pinged me. I might be up to join as a contractor for some time, to help out with knowledge transfer / maintain the code.
* Since my co-founder will still work within the same market, I can't open-source the code without causing friction I'd say. So might not do that.
* I consider my co-founder a really close friend so it is of high importance for me to keep our friendship intact. For us to be able to do that, I need to figure out what is fair so all of your comments really helps!
I'll keep on answering questions as they come. Again, thank you all for your answers.
[+] [-] jbverschoor|6 years ago|reply
The thing is, you created what was expected. She didn’t produce what was expressed from her.
If she’s doing the stuff of your last pivot, you’re basically getting fired. You worked 2 years on it without pay.
Getting equity in the new venture will be difficult, but it might be easier to get cash for not getting in the way might or not claiming some anti-competitive clause.
This is also better for you, as the CEO isn’t able to sell anyway, and that will probably not change in the new venture.
Don’t just sign to get fired so you get something that’s already yours. If she thinks the code is worth selling, she should be doing that herself
[+] [-] didibus|6 years ago|reply
But, since you asked specifically what you could possibly do with the left over code, I believe Shopify has a market of add-ons, so I would look to see if you can't salvage some of the code as a Shopify add-on and sell it there. Maybe your ex co-founder can even become your first customer of it.
https://apps.shopify.com/
[+] [-] Nexxius00|6 years ago|reply
> Anything I should do first, legally wise?
This is a tricky situation from a legal standpoint and you should contact a lawyer to get some advice for you in your personal capacity. Transferring ownership of code isn't always as simple as saying "this is now yours!". You will want to find someone who can draft an agreement to assign the rights in your code from your company to you. In some jurisdictions, if multiple people assisted in writing the code, there may be additional steps you have to take to secure your rights in the code. You mentioned that you wrote the code, but a lawyer will hopefully be able to take a look at your specific circumstances and give you some advice on what you need here.
> The company will be completely shut down, no more b-corp. > I own < 50% of the company
You're also probably going to want to get any lawyer you hire to look at the documents that established your company (including any articles of incorporation or a partnership agreement) or your employment agreement with the company (if you have one). These documents may be important for your receipt of the rights to the code, and also for determining what your rights are with respect to the assets of the company after you wind it up.
> The problem is that I have no clue how to properly handle a sell like this.
Again, a lawyer can help with this (not to sound like a broken record) once you have a buyer lined up. You'll need to draft and negotiate an agreement to sell the code, which a lawyer can assist with.
In terms of what to look for in a lawyer, try to find someone that does commercial technology contracts and has experience selling software. Not all Intellectual Property lawyers do work with software/technology, so you will want to try to find someone in that niche area. Pricing for drafting an agreement generally scales with how customized the agreement is. Depending on your specific circumstances, you may be able to get away with relatively generic agreements, which can help keep costs down.
[+] [-] xwdv|6 years ago|reply
You were not paid to keep this code under wraps. You don’t owe anybody any favors. If they didn’t want you open sourcing it, they should have valued the code and bought it off of you.
Teach them a lesson. Release the code. Otherwise people will just walk all over you all your life.
[+] [-] fxtentacle|6 years ago|reply
But if this is about a girl, then I worry that you already lost. Even today, most women still subconsciously expect their boyfriend to be able to provide for them, if it becomes necessary. For that criteria, a boyfriend that cannot successfully negotiate deals to his favor is an unsafe choice. That's why guys who pretend to have complete control do so well.
That said, it seems like you got one very good lesson on accounting for software development here, which will help you avoid similar issues in the future.
When I do free work, I always send invoices and then simultaneously grant the start-up a timely unlimited credit on the amount. That way, they don't have any cash flow issues, which is the main worry for any startup. But you'll be listed as "payed in $ X in working time" in their bookkeeping, which means both you and them and their investors know precisely how much money to send your way to pay you off.
The only annoyance with having invoices in their books is that you have to pay profit taxes on the owed amounts. But of course you get those taxes back should they tank and not be able to pay you anymore.
But overall, I believe that most CEO and sales types will not value anything that isn't listed in their finance books. So make sure you show up in their term sheet with a high $$$ amount next to it, or else they won't take you seriously.
Oh and in most countries, the tax and legal stuff is really cheap. I would be surprised if that is anything more substantial than a tactic to get you to commit quickly.
[+] [-] unknown|6 years ago|reply
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[+] [-] yowlingcat|6 years ago|reply
Second of all, don't say you "invested your time" -- you worked for free. There's a difference. If your cofounder is actually a really close friend, you have very unfortunate taste in friends. After all, it's you who cares about keeping the friendship intact, not them. What kind of a friend has their friend do free work for two years and then unceremoniously cuts them out? You don't have a friend. You have someone who dangled the idea of friendship in front of you to exploit you for your labor.
As far as business partners go, they're no good. Whether they were paying with their own money or not, they failed. The two jobs of the business cofounder are to bring the product to market successfully and get traction, and to raise money. You worked for free and they're not going to even cut you in on the new business, despite the fact that you're the only one who has the full technical history in your head?
I don't see signs that you have, but you should learn a valuable lesson from this. The first is not to work for free, even as a cofounder. The second is to be wary of and generally avoid cofounding with friends because a cofounder relationship is a business relationship first and foremost in a high risk new venture that will likely end in failure. That means you need to be ready for the working relationship to be burned, or you won't be able to make the right decision when things get rough.
This is a sad story as old as time. I myself went through something similar about 6 years ago. It was very challenging and caused me no end of grief. But at the end, I was forced to recognized that I was exploited and that business partnerships are not friendships and vice versa. People go into business to make money, not to ensure everyone that works at the company gets equally compensated. If you see an exception to that at early stage companies, it's great but it is certainly not the rule. Remember that and be very careful.
To end on a good note, I'll leave you with some advice. You've had to learn a lot by taking the risk of trying to start something from scratch, even if it failed. That experience, while very costly, can be quite valuable. Take that experience towards a job at a reasonably stable company that's making money. While you won't get those two years of your life back, you can at least recoup the time you spent on that experience and parlay it into faster and more lucrative growth at a bigger company. Do that for a while and see how things work at a healthy company that's in hypergrowth. Once you see what things should look like, and how they formed, you'll have much more realistic expectations on how to get there should you decide to make try to make this journey again. You'll likely have the executive team from that company, the VCs who invested in it, the money you made working there, the experience you got executing, and of course, a much better network of people to go through the founding journey with. That was my experience.
Best of luck. Remember, you can survive this. And, it can and does get better.
[+] [-] james1071|6 years ago|reply
Once you have rights to your code (and use a lawyer), you should use it for the benefit of yourself.
Open sourcing it is your decision, based on what's good for you.
[+] [-] chvid|6 years ago|reply
[+] [-] cjensen|6 years ago|reply
In Ancient Days, Ampex was the king of video tape recording and magnetic storage. They created a system for recording documents onto video tape, and then later a system for recording documents into mass storage. The software engineers on this project created a database system to manage the storage. When the project was inevitably cancelled, they allowed the software engineer to keep the code from project Oracle.
Of course the value depends on the what the code accomplishes, and what new ideas you can leverage it into.
[1] https://www.cia.gov/library/readingroom/docs/CIA-RDP80-01794...
[+] [-] nathan_f77|6 years ago|reply
EDIT: The Wikipedia page needs to be updated! [2]
[1] https://en.wikipedia.org/wiki/Oracle_Corporation#History
[2] https://ce399fascism.wordpress.com/2010/08/02/oracle-corp-na...
[+] [-] preommr|6 years ago|reply
Code is an asset, and can have monetary value.
The problem is it's hard to know if op's code is actually useful or not. If it is, then they should be able to spin it into something else that does make money. Show that it's generating revenue, and then that'll be the value of their business.
From there, op can be as flexible as they like: hiring freelancers and running it in their spare time, selling it off, getting investors, working from home in an area with low cost of living, etc.
If OP can't make money off this thing, then that's a very bad indicator because it means other people can't really make money off of it. If OP needs more resources like a large sales team to make this profitable, then the value of his code to the overall business is lower and they shouldn't expect as much and maybe just write the entire thing off as a bad lesson (which honestly sounds like the case here).
[+] [-] Accujack|6 years ago|reply
It sounds like OP did the former, which means there's not likely an original product to sell, just a custom assembly of other products that form a system. That's a worthwhile thing to build and can be a money maker, but it's not an asset itself.
If you take away the installs of the products that make up your solution, then look at what's left... that's the asset that's being offered to OP. It might be something worthwhile, but most likely he's being offered it because he has an emotional attachment to what he's built, and they think he will take it without looking too closely.
[+] [-] unknown|6 years ago|reply
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[+] [-] james1071|6 years ago|reply
[+] [-] mooted1|6 years ago|reply
My company has one chief competitor.
If that competitor went out of business and offered me their source code, I'm unlikely to pay for it. Code tends to be highly coupled to the specific assumptions, structures, workflows, architecture, and environment it was designed for, unless the team has gone out of their way to make it reusable. Most often, it would be easier to rebuild the same functionality from scratch than integrate someone else's code into your product.
What is valuable are the more generalizable and often intangible assets my competitor has accrued:
1. Its relationships with potential clients. 2. The lessons they've learned in building the business so we might avoid them. 3. Their employees.
Do you have any of the above to offer to companies tackling similar problems?
That said, isolated parts of a codebase can be useful, if it's easy to reuse and solves an extremely challenging problem and has required a large amount of investment to develop and mature. If such a part of your codebase exists, you could try finding a buyer for that.
[+] [-] modeless|6 years ago|reply
Code is inflexible. Code has bugs and vulnerabilities and patent infringements and licensing issues. Code needs lots of maintenance.
The value is in the people who know the code. That's you. If you sell the code, you have to go along with it.
[+] [-] lioeters|6 years ago|reply
..Then perhaps it can be recommended for the OP to "sell" the code together with the expertise/team/himself as a package?
If I were in a situation where my company needed a solution that he describes, I might be interested in such a package: fully functioning software with a domain expert (who has proven able to put together and lead a team).
[+] [-] streetcat1|6 years ago|reply
What existing code gives you is time and risk reductions.
[+] [-] madiathomas|6 years ago|reply
This statement sounds like your co-founder is just getting rid of you because he realised a designer can do better than you and won't need shares of the company. You validated the market for him and he doesn't need you. This is the reason I always tell idea guys to pay me or go and learn programming themselves and implement their ideas.
[+] [-] maxdo|6 years ago|reply
[+] [-] jb12|6 years ago|reply
Is the stripe integration in react-native? If so, I think it would be great to open source it and publish to npm. There really isn't a good react native stripe library out there, the only one I have dealt with is tipsi-stripe[1] which is poorly documented, poorly maintained and inflexible.
If you really don't want to open source it, I'd love to chat about buying it off you.
[1] https://github.com/tipsi/tipsi-stripe
[+] [-] servercobra|6 years ago|reply
[+] [-] sverhagen|6 years ago|reply
[+] [-] sheeshkebab|6 years ago|reply
Take a loss on this startup and move forward to something new.
[+] [-] fxtentacle|6 years ago|reply
But where people here are correct is that in most cases, source code by itself will fetch a lower price than the customer contacts, email marketing lists, pre-qualified leads, ad designs, etc.
That said, we did sell source code at a good price a few times, but that only worked because:
1. The company buying it had overpromised to their customers and were contractually bound to deliver, so purchasing my whacky half-finished source code was cheaper for them than paying the penalty for not delivering on time. As part of the deal, we were also hired for a month to integrate their CI into the app and ship it. After they dodged legal responsibility this way, I believe they never used the source code again, but instead hired a team to rewrite everything from scratch. So they paid us purely for the time savings.
2. The software being sold had been featured on national TV together with a major Hollywood movie studio praising it. This started out as helping people for free and then we built without any feedback what we thought the market needed. But it was a ridiculously unbelievable stroke of lucky events that led to us sending a feature-limited version to studios and them using it and promoting it among themselves.
3. The source code being sold was rumored to contain an algorithm doing content-based image retrieval (think Google Images search) more efficiently than the largest publicly available search engines.
4. The source code was sold at a big loss. It would have cost 5x the price to hire a team to build it again.
It doesn't sound like you're famous yet or like you invented the next big algorithm, and you probably don't want to get paid scraps either, so your best bet if you insist on monetizing the source code would be to find the one medium to large company that urgently needs this video chat to work or else they face horrible consequences. Only then will you get a good price.
[+] [-] dyeje|6 years ago|reply
If there's no interest though, then any upfront work you do now will be wasted effort.
[+] [-] jacobsenscott|6 years ago|reply
[+] [-] paxy|6 years ago|reply
Depending on what your co-founder is walking away with, you may want to negotiate a better exit. If there is nothing else, then more than the code work on selling yourself to an interested company.
[+] [-] nla|6 years ago|reply
[+] [-] darkerside|6 years ago|reply
Code is cheap. Your legacy from this startup will be experience, not code. Move on and start fresh.
[+] [-] Aperocky|6 years ago|reply