Experience coding for equity. Results for 8 years
Photo from wiki.apidesign.org/wiki/HtmlForFood
Hello. We summed up the work done over eight years, counted the projects where our studio was a technology investor, and analyzed successes and failures. Despite some progress, we came to the conclusion that coding for equity does not work.
Under the cut - a description of the reasons for abandoning the practice of technological investments, the reasons for the failure of the projects that we coded for equity, and different schemes of working with the founders depending on the time period, size of the studio, market situation. And also - a little sadness, philosophy and lyrics.
Every web studio wants to become a grocery company.
Our studio, like hundreds of others, usually originated - we left freelancers who received more orders than they could do with four hands, and therefore began to hire employees. The only difference was that from the very beginning we chose a niche for technically complex projects (in 2006 the word “startup” was not used). Without understanding anything in business, we instinctively guessed our narrow market, where we still operate.
The very first coding for equity experience began simultaneously with our birth in 2006. Then we were found by an entrepreneur who developed an online project for private ads, without any technical background. We undertook the development of the system. Nothing came of plans to capture the St. Petersburg market, and then the whole country. Six months later, investors reversed, and the founder fell ill with a nervous breakdown, after which he did not recover.
This story upset us, but optimism prevailed and from the first project we smoothly moved into the second.
It turned out that all the stories of our internal and coding for equity projects are different from the stories of other web studios. As a rule, studios develop a project - a solution to their own pain that cannot be solved by existing tools. All the ideas that were born inside the studio and brought in from outside were not a solution to the studio problem or its founders.
The offer to get away for equity came to us from the founders of startups who did not understand or were poorly versed in technology. It was assumed that, entering the project, we not only undertake the development, but also close the technical risks.
Coding for equity (technological investment) is the development of the technical part of the project for a share in the business. The volume of development, the amount of the share and the rules for its issuance, the costs of the company (team) of the developer - as agreed by the parties.
Simplifying greatly: we give you MVP, you give us 10% of the project.
Simplifying greatly: we give you MVP, you give us 10% of the project.
Our coding for equity path can be divided into several periods depending on the year and the scheme of work.
At this stage, we entered the project with partners with the right to manage and partially took upon ourselves the responsibilities of developing the business part of the project. Arrangements were recorded in writing, but not legally.
The decision on participation was made on the basis of the adequacy of the author of the project. A lack of experience did not allow a deeper analysis.
None of the projects have survived to our time.
In the meantime, all ideas were viable. Simultaneously with the Drive, Avito started, which now feels great. LinguaLeo lives and thrives, and i-Language died quietly.
After the first stage, it became clear that it was very easy for the founders to close a project in which they did not invest their money. Therefore, new practices introduced coverage (by the founder, investor) of all or part of the costs. Covering part of the costs meant different things in a different project: one project paid only those expenses that we paid out of the studio, another compensated part of the costs of the team. Amounts depended on development volume.
During these years, we developed a minimum MVP, limiting ourselves to a minimum share in the project and avoiding management. Our participation in the projects was already legally formalized, but very awkward. For internal projects, we used the same approach - developing a minimum viable product and quick launch.
At this stage, having survived its first crisis of 2008, the studio began to grow. We launched several large projects, began to do HackDay, set up internal processes, in short, became a business. And then they realized that the business studio is unscaled and low-margin. Starting your own project, internal or for equity, was the goal.
From the experience of the previous stage, it became clear that the complete elimination of management is also a bad idea. Therefore, we returned to the model, which implies participation or influence on the management of all aspects: sales, marketing, etc. Our work was paid at cost plus 5% airbag.
At this stage, starting with a restaurant project, we launched a process together with partners in the course of which ideas and business models are developed, then a co-founder is sought for a specific project, which becomes the CEO of the project. The studio entered into a technical partner and took on the closure of technical risks, development, HR of ordinary programmers and service stations in the projects when they became independent. Such a model, in my opinion, has little to do with coding for equity, for us it has become the final experiment. On the last draft of the table, the studio exited the accelerator, which means non-participation in the next rounds of projects.
The partnership had clear processes of interaction with the studio, partners, performers, prescribed in the contracts of an offshore company.
We developed and tested MVP. If he didn’t go after several attempts, they closed the project.
Also at this stage, the HackDay School was launched - a 100% studio project that still works.
Reasons for abandoning the practice of technological investments
I see the main reason for the coding for equity insolvency as the lack of full involvement of the technical team in the business and control over the business component. You can not shift responsibility for the business to others. Other reasons of a lower order: immaturity of business leaders, lack of understanding of the specifics of the market, lack of understanding of what to do with the product, how to develop it and change direction.
What have you tried
The projects were with an offline component and without it, with experienced founders and newcomers, simple and technically complex, with and without a contract, with a legal entity in Russia, with a legal entity in Delaware, without a legal entity; invested and not; made with the money of the founder and the founder’s parents, launched from money from the sale of the car, projects of friends and people from the street, launched intuitively and by books.
The result in any case is not happy. Even if projects do not die, they still don’t bring money or bring disproportionate time spent.
Pros and how it ended
According to the text, it may seem that the time spent on coding for equity was dramatically large, however, this is not so. Most of the time the studio developed as an outsourced developer, and in the next few years will continue to work in this market. In addition to the latest experience, employment on own and technical investment projects was no more than 10%.
The most valuable thing we have received is experience. So far, the projects are working, and in connection with the fall of the ruble, dollar investments will be enough for them for a long time. The studio has a decent percentage in five projects, and now the question is whether they will take off or not. We sold part of the stake in one of the projects and received a small amount on hand (
We broke up with failed partners without conflict. All of them are wonderful people, many of whom are now developing their business, if not explosive, then successful.
For a year with a little studio has been developing its own personalization project REES46 100% on its own. There are no rapid leaps in its development, we are developing smoothly, but we ourselves control all directions.
Feel free to ask questions and share your experiences in the comments.