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It takes an investor with a special kind of appetite to invest in software. And in my research, I have found that there are very few with that type of interest. I have a business model for an internet marketing platform. How can I find a client that would pay for my development costs of the service in exchange for a license?

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How does that vary from just paying for a license, you get money, they get a license? – David May 16 '12 at 18:08
@David This way they get the pleasure of paying for vapourware – Steve Jones May 16 '12 at 18:25
Thanks for the negative votes!! And awesome intellectual insight. – Chad May 16 '12 at 21:34
How much would it cost to develop your software? I think it'll be even harder to find a future customer who wants to invest than to find an investor. – frenchie May 16 '12 at 23:30
@frenchie, this is a good point. I very well could be looking at a this from the wrong standpoint. – Chad May 17 '12 at 3:36
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5 Answers

up vote 3 down vote accepted

I've actually done this. More than once. We had ideas that we wanted to build as B2B SaaS/PaaS solutions and expanded to a good concepts. We didn't want to bring in external investment. We found a niche market, and made a list of target clients.

We went to those clients and spent time understanding their problems, until we were sure we knew them better than the client did. Free consulting if you like. Then we pitched our solution to them, in their context, with their real numbers attached to it.

Not only did the client(s) pay for the up front development cost, they took out a paid contract for using the platform ongoing.

With a good contract, and sensible billing against milestones, the risk for the client is actually quite low.

There's a couple of caveats: We have a lot of experience in solving problems in large companies. We knew what we were talking about in terms of our product. We invested our time and experience into the client. We knew how to make a compelling sale. We are likeable people. We have balls of steel.

If you're unable to fulfil these sort of criteria, you've got a very slim chance of pulling it off.

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I've done something similar too, but it is non-trivial and I would say I was lucky to be in the right place at the right time. Crossing the Chasm is out of date now, but still has some useful lessons. – Steve Jones May 17 '12 at 14:49
@Nick Stevens, I was hoping to find someone that has been through this example before. Your insight is PRICELESS! Love the Balls of Steel metaphor. If nothing else, I do have that. My team fits your description to the tee. Really appreciate the time you took to lay out what objectives need to be met, and a blueprint to follow. Thank you again! – Chad May 17 '12 at 18:22
@SteveJones, Luck, I will take some of that any day! – Chad May 17 '12 at 19:00
up vote 8 down vote

The model of the partner takes all the risk and pays all the money, whereas you get paid for development time, take no risk and take all the reward for selling the licenses is simply wrong, there is no way around this conclusion.

You must perform at least some part of the initial development at your own cost. At that point, you could try to pre-sell beta licenses to a number of customers to cover the next step of the costs. But your initial investment must be significant in order for customers to have something to see.

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you make a good point here. A significant investment on my part would be crucial, whether it be monetary or sweat. Besides, anything worth while take more than a hand out. Thank you for your input! – Chad May 17 '12 at 18:44
up vote 4 down vote

If I was a client and had that money I'd just use it to build the software myself, give myself a free licence to my software, and recover that money by selling licences when the software is ready. What you're proposing doesnt make any sense

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You make the flawed assumption that the client has the capabilities to build software. – Nick Stevens May 17 '12 at 13:37
@NickStevens, I also believe the assumption is somewhat flawed. My research shows that the clients that would benefit from this, do not have the capabilities. If they did, this would have been created long ago. – Chad May 17 '12 at 18:09
the client can hire a software development company to make the software, not make it themselves. they may not have thought about it before but if you come to them with that proposition then they will if theyre smart – mikeg May 17 '12 at 21:57
@mikeg Yes, the client could go to a software house, except they dont understand what it is they want, let alone what it is that they need (which are two very different things). When you come with a value proposition, you're only transferring the idea and the outcome. Those two things are not sufficient to build software. – Nick Stevens May 18 '12 at 9:24
i understand that steve, but if they really have no idea what they want or need then how will the op know enough to build them useful software, excludin any psychic powers he mayhave? im guessing the client is a rather large business because the op is asking them to fund the entire project which is very expensive. large businesses are capable of submitting tenders. i still dont see the benefit of paying for the development of software if the payee doesnt own the intelectual property they arw paying for. – mikeg May 19 '12 at 3:29
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up vote 2 down vote

If I understand your question correctly, what you're asking is to find a client who will pay your costs for you to develop an internet marketing platform. In exchange, you will give them a license to use the software.

Disadvantages for your potential business partner:

  • Your technology is unproven and they don't know whether or how fast you will be able to get it to work. By contrast, they could take the money they would pay you and buy an existing marketing platform.
  • Paying for your development means to pay for you to do all the work to handle initial bugs, etc. This can be very expensive.
  • After they pay for debugging, you are going to turn around and sell the product to other companies. This will be pure profit for you and your original "investor" will get nothing in return other than a license.

I certainly wouldn't take such an offer myself.

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This is very good insight from the partner's view. And everything you have stated would indeed be the case. Somehow there must be a way, or offering, that both parties reap the benefits. – Chad May 17 '12 at 3:32
@Chad: Perhaps if you treat them like a regular investor, and give them a percentage of the income of all of the licenses sold in perpetuity, because they fronted the initial development costs. – rbwhitaker May 17 '12 at 16:23
@rbwhitaker, thank you for your input. That would be a viable option, and both parties would come out on top. I will take a look at that. – Chad May 17 '12 at 18:12
up vote 0 down vote

You should find a partner that offers more than just paying for development costs. Others have stated there is nothing in it for the business owner, but I disagree. First, they shouldn't expect to pay the same amout as they would for a custom application. They're getting in on the ground floor and can have a strong influence on getting the features and functionality they need.

Second, don't expect them to directly compensate you for the cost of building the app, but work with someone who is connected in their industry and can attract other buyers. Again, you're offering to let them get involved in the project from the beginning, so they can have a lot of input into the app. You can also offer a referal agreement that could potentially allow them to gain their initial investment back.

You may want to find independent business owners who want to turn their business into a franchise or create dealership program. They're going to need an app on a much broader scale along with ways to aggregate all their dealers/franchisees. The members can pay the software license. This approach may delay your payment, but builds a strong relationship and revenue stream in the long run.

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this is a great answer! While reading it, several options kept popping in my head. This is a great approach to pursue. With this great input, and the others that have contributed with great insight, the ground I am standing on is more solid that it was yesterday. Thank you for taking the time to help lay out a great strategy. – Chad May 17 '12 at 18:31

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