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A friend of mine has asked me to come on board with him, full time, as a business development consultant. Specifically, he needs me to produce market assessments for his portfolio of product ideas (9 good; 3 extremely compelling ideas with patents, trademarks, copyrights, nearing prototypes) in order to prioritize each possibility and execute them in optimal order of 1. quickest to revenue, 2. quickest potential exit, 3. overall market size, 4. future potential broadening of product line.

I propose a small monthly fee (2400), well below market level, with an escalating equity position in the overall company; starting at 2%, leveling off at 5%. Also, need to make allowances for the risk I am assuming; ie. the diference between low monthly fee and what I would be making elsewhere.

Also, as these product concepts are being developed by the two of us, I will be named as part of the inventing team on patents in which I play a key role (many, if not most). This will change the equity position I require, should these products spin off into seperate companies.

Please note, I am not currently investing any capital into this. This may change down the line. But, let's assume it will not. My friend, the owner/CEO is using a fund he created from a portion of proceeds of the sale of his previous company. So, factor that into your thinking.

I realize the preceeding paragraphs may be a bit convoluted. And, you certainly more info to form a final opinion; I'm just looking for educated commentary, advice, suggestions etc.

Thank you in advance for your participation.

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+1 for a terrific question. – Jason Nov 26 '09 at 19:04

4 Answers

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I only have one thing to say: It sounds like you expect to get some financial benefit and control from being named as one of the inventors in the patents. Being named as an inventor is pretty much irrelevant from a revenue/compensation standpoint. If your goal is to somehow share ownership (control and moneywise) of the patent, you have to be an assignee of the patent. Inventors get credit for the invention, but that does not mean that they own or control the invention, the "assignee" does.

Inventors are individuals, while assignees are usually (or always?) corporations. The assignee gets the revenues and control. So watch out for that and make sure you are an assignee if you want to have a say or a share of the patent revenues.

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+1 for patents and being named on patents being irrelevant for anything. Assignees are everything and yes it's the company, not the individual. That's just ego credit -- which is fine but not valuable. – Jason Nov 26 '09 at 19:04
Hey, it's not all for naught... Being named on a patent is QUITE a chick magnet :-) – Gabriel Magana Nov 26 '09 at 23:14
up vote 2 down vote

Usually investors prefer the patents assigned to the corporation

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I'm not even sure you can assign a patent to an individual. It makes sense to assign it to a corp and then have the corp deal with the actual ownership (ie, I doubt you could assign a patent to two different corporations) – Gabriel Magana Nov 25 '09 at 21:55
Not just prefer, but require. +1. – Jason Nov 26 '09 at 19:04
up vote 2 down vote

"Escalating equity" is usually implemented as a "vesting schedule" for a stock grant or stock options. Sounds like you are early enough in the game to expect a grant, which is good. The total amount of the grant sounds reasonable to me, but note that your grant will undergo dilution and will be subjugated to additional preferred shares issued to follow-on capital investors. This is all good; just don't expect your equity position to stay at 5% unless you are able to obtain a new options grant with each round of financing. Unless the company fails (or needs no additional investment), in which case you get to keep 5%. :)

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+1 here too. Looks like I don't have to answer myself. :-) Yes "vesting" is the better/normal way to think about this. – Jason Nov 26 '09 at 19:05
up vote 0 down vote

My advice would be to measure risk vs reward. Simple I know....

You know the owner/CEO well and he has already launched a successful company. You know better than most his potential to develop another successful product.

You are being paid to take this risk which helps to reduces it.

You are in on the "ground floor" and are potentially receiving a C-level stake in the company.

You have 9 good products and 3 potentially great products. Many people spend a lifetime searching for just 1.

Depending on your personal situation, financial-age-married/single-children etc, and ability to take on risk this could be a great opportunity.

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