Large companies can be strange sometimes. As startup entrepreneurs we all want to work with them because having their name as reference clients makes it so much easier for marketing, PR, selling to other customers, fund raising and even recruiting. Plus, we’re all allured by the false sense that our contract with BigCo is going to “make us” because once they start using us it will spread like wildfire and the revenue will flow in. Sometimes it actually does. Usually it goes more slowly than we hope.
But I say they can be strange because of their behavior in working with startups. I’ve observed the following scenario in both of my companies and in countless others I’ve advised or invested in:
- your company becomes moderately high profile in a few press articles
- BigCo calls you to review your product and decides they want to use you
- They negotiate a “master agreement” to work with your company with some maybe minimum guarantees in terms of revenue
- Somebody high up in the company reads the agreement and says, “if we’re going to work with these guys and make them successful then we better share in the upside.”
- What they mean specifically is ownership in your company. I’ve heard the following so many times that it still makes me scratch my head, “if those guys are going to get rich off of our backs then we’re going to look like fools if we don’t have equity.”
To read the full, original article click on this link: Should Your Startup Give Performance-Based Warrants?
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