Selling IPO

[Brown and Boris]

As some of you will know, as I have bored you all with over the last few months, I have developed a product which now looks like it is finally coming to fruition but I wanted an outsiders view on taking it forward.

I have a small two man band company with my wife where we do reaserch on the HR side. Over the past 3 or 4 years, between other jobs I have developed , trialled and refined a web based psychometric test for HR use. In development I used an academic I met to find MSc students to carry out bits of the work in driving sample to the web site. The academic suggested a more corporate use for the test and it looks like that side of the test could become a significant selling point and market. To date I have put in about £20K of hard cash in web development, software development, buying trademarks and domain names etc and about 140 days of my time. The corporate version is part of that development cost but in reality with the exception of a few trips to London all of the costs would have been incurred for the original HR version. There is also a research version developed at the same time for university and public programme reasearch.

The university have now approached me to take a 10% share in the IPO of the corporate version of the test (not the HR or research versions) in return for £3k to fund market research for the corporate version and the use of their marketing dept. and press office. I think that this is simply seed money as they have indicated that if the market resaerch pans out they would look to ask to buy further share in the test. At a glance the 3K seemed derisory given what I have put in but having their badge on the product (they are a London based institution with an international business school and a prescence in other countries) and the use of their marketing and press people is pretty attractive. Of courese the £3k for 10% is only 10% of the corporate version and there is nothing to say I wil sell them any further share at the same price (in fact I wouldn't). I also want to keep the academic guy involved as he knows quite a bit about how it works and there will be a need for ongoing research which his PhD, MSc students will support at minimal cost. He has also suggsted another aplication for the test. He also has access to a wide range of companies who are clients of the university and to part time students on courses at the busines school some of whom work in middle and senior management in the big companies likely to want the test. Subject to the ethics being sorted I am thinking of offering him a small foothold in the IPO of the corporate verson and a finders fee for any business he can drive to us in any of the three versions and to offer him an incentive to stay involved directly with the corporate versions (such as running seminars and training).

I could licence the test and sit back but the publishers I normally use who want just one version of the HR version at present are offering me 15% of the net profit although they would then take over all the marketing and selling tasks and just send me a cheque every quarter.

The real margin is in the setting up and the analysis of test data so although I had intended to licence the system for companies to use themselves, I am now thinking that keeping those services in-house might be the way to go across all versions so we maintain control over how it is used ( I can se it being abused in some hands) and take the work where margins are higher.

I am really enjoying the thrill of the new product development and marketing but I am a technie, not a marketing man and fear that although I want to retain as much control/money as I can, if I don't get help like the university is offering I may not exploit it fully and will remain as some backroom boy with a great idea which didn't really reach its potential. I suspect I trust the university more than I should and more than I would trust some unknown Dragons' Den type.

So, the options and questions are ;

Go it completely alone, and try to buy in or pick uop the sales and marketing skills?

Hop in bed with the university?

Look for another investor (although I don't actualy need their money so it would be just for their skills and experience) ?

Licence it to publishers and sit back for my 15%?

How do I keep the academic involved?

[wattsm666]

Give your academic a share option, which can be exercised when certain pre-determined criteria are met.

[rm030775]

I would suggest getting to the commercial release whilst retaining as much ownership of the IPR as possible.

Once you have a saleable product to take to market you can then look into raising capital via vc's etc to fund further expansion, if needed.

My advice would be to look to "partner" with firms that see the business benefit of your application with their current/proposed proposition. In an ideal world, they help you to drive/shape development and can then aid in the sale/promotion of the tool once commercially available.

Happy to offer help off-line if needed (13+ years software business management/market development experience)

Richard M

Edited by rm030775 on Tuesday 15th April 14:44

[ukvoyager.info]

An interesting product you have there.

Brown and Boris said:

Go it completely alone, and try to buy in or pick uop the sales and marketing skills?

Do you have the time? You would probably need to devote a large proportion to get it up and running.

Brown and Boris said:

Hop in bed with the university?

Having the University promote the product for you might be worth while, it might not.

Firstly, if you are selling in to academia (to screen candidates) then it might carry some value. I would say at most it would represent 5% of your projected sales to the market sector, but I could be wrong. The numbers up to you.

Secondly, be clear on how much time and from what people you would get. A promise is a promise and a contract is a contract. You could also get a quote from a PR company to compare. Give that service a monitory value.

Add the two up + the £3k they are offering and then ask yourself whether it is worth 10%?

You might also want to chuck in a hassle factor. For me academia and local government are a pita to deal with and that would take away some of their value they would bring.

Brown and Boris said:

Look for another investor (although I don't actualy need their money so it would be just for their skills and experience)?

Why not interview for a sales person that's heavily commission based and has some marketing skills? Offer options as an incentive.

Brown and Boris said:

Licence it to publishers and sit back for my 15%?

It never works like that. I would want to be in the driving seat.

Brown and Boris said:

How do I keep the academic involved?

Giving his people summer placements? Job interviews at the end of their course?

[Brown and Boris]

I have had a thought:

is it best to set up a company with the other parties as share holders rather than sell them x% of the IPO? If I sell them part of the IPO directly, can they then stop me using it as I want or can I just make it oart of the IPO deal that they share in it but they cannot use it themselves and have no control over how I use it?

[srebbe64]

If I were you I'd find a hungry, entrepreneurial partner with a strong marketing bias. I'd offer them X% of the company's profit (which will be high GP and therefore turnover driven by the sound of it). I'd also look at offering equity when certain milestones are achieved (operating profit and/or turnover).

[Brown and Boris]

srebbe64 said:

If I were you I'd find a hungry, entrepreneurial partner with a strong marketing bias. I'd offer them X% of the company's profit (which will be high GP and therefore turnover driven by the sound of it). I'd also look at offering equity when certain milestones are achieved (operating profit and/or turnover).

Where would I find such a person/company? I must say I do feel a little like a lamb to the slaughter.


Sadly our market place is full of quite traditional and very slow moving companies whose fear of a product failing is so great they want every base covering before they sell a unit which is why I have been quietly and probably ineptly pushing it myself.