Some broad questions on a JV scenario

[azswe]

From what I´ve understood many here have done different kinds of joint ventures and are plenty experienced in the business side of things.

I´m approaching this from specific case POV, but I think some of the discussion could be interesting to others too.

If there´s anything that should be answered before you can answer, please ask. Or something I/we should consider before further consideration, I would appreciate being told so.

Premise:

JV Project, 3-6 "founders"

Case:
Online media - Primary monetization different forms publishing revenue. Some additional affiliate revenue sources available but these are available most likely after acquiring critical mass.

Team:

A: Competent in most things digital marketing and most qualified in ecommerce/digital advertising industry (ie. mobetization). Would have the lead on strategy, monetization and advertising&acquisition. Can more than chip in on content.
B: Good with social media, can handle the day to day and do advanced leaking-kind-of-stuff too. Boots on the ground in the industry and at least pulls his weight in content. Good enough in front/backend to handle most of day to day dev once initial set-up is most likely bought to some degree.
C: Silent partner ("venture capitalist") - Could fill an advisor role on certain things that dont need heavy hours and could be outsourced at non-critical cost.
D: Silent partner ("venture capitalist")
(Possible E-F: Silent partners)

None of A to D have significant experience in JVs or running a full scale operation from A to Z. Only A has relevant contacts, but not to a degree of real monetary value.

Set-up etc. + first 3 months advertising cost: "10,000 units" ****

A+B would be putting in significant hours during set-up and would be responsible for all day-to-day, content, sales etc etc until (if ever) the project is profitable enough to hire and/or outsource signifanctly (wild guess at this point hire earliest at 12 months, significant outsourcing at 6 months)

C-F are watching and asking for updates at least for 1st 6 months, most likely until forever.

**** A+B could save the units feasibly within 6-12 months but due *reasons* would prefer not to, and that´d anyway delay the launch significantly. Or get personal loans but would prefer splitting the risk in exchange for equity.

This niche needs an almost daily hands-on approach so in a sense it´s hit or miss project...as in there´s a possibility at 3 months certain revenue goals haven´t been met and the upside to continue is just not there. C-F would lose their investment or 95% of it.

On the other hand there´s scaling opportunities a) within target audience to a larger portal to attract larger audiences for Phase A monetization and/or further more profitable monetization methods and b) scale (original concept with/without scaling option a) to further locations, but these should be considered upside and would die if the original concept doesnt pan out.

So your thoughts on setting this up in an extended JV...?

1) Potential disaster?
2) GTFO
3) Doable...
4) Sounds good?
5) Mate, you really should consider things like X, Y and Z

IF 3-4, how the hell should the equity be split?

a) in your opinion?
b) Estimate the 1st 3-6 months working hours for A+B, assign an hourly value and come up with the total cost for 1st 6 months, each partner commits hours (and/)or money and split accordingly
c) A+B create a business plan which they present to C to F with a valuation and they make big boy choices with their own money
d) azswe is thinking this all wrong, Option D as in the way it actually should be done?


Some further things I have no clue on:
- I´m thinking along the lines of "after setup etc we should at least to close running operative profit after 3-6 months - (if not but) we wish to proceed, how to account A+B´s day-to-day involvement in coming months - just from the get go treat it as possible Angel round (at 0.1x level) point and communicate accordingly in the initial businesss plan?
- Considering A+B will run all day to day, is it reasonable to value all "advisor" input at $0 value?
- Ideas are wortheless, but should/what kind of premium (should there be placed on) is put on the concept, strategy, vision and all the fancy words - especially if A+B´s contribution is accounted in hours?

 

[azswe]

So any1 have recommandations for further study on the topic online/kindle/in books?

 

[Ryuzaki]

I've not entered into a site JV, or one in general, with this many members. But I don't want you to be left hanging so here's what I think:

Yeah, it's a potential disaster, as is anything. You'll need to make sure there are exit clauses where not only can someone leave if needed, but you can force them out too. It seems like the whole ordeal will hinge on this.

Beyond that, which should be a non-issue if taken care of, it seems doable. I'd expect at least one person to get pissy about someone else not taking on their fair share of the burden, one person to slack off, others wanting more percentage, etc. You may find yourself cycling some partners throughout the ordeal, so being able to survive that is going to be critical. The silent partners with the funding should probably be that and only that. That removes the risk of funding falling through, since all they will care about is a return.

It sounds like your "c" option should include the "b." The two workers are the ones working and creating the plan. Everything is based on their efforts and competency. They need to bring an itemized, time-based, calendar based plan to the table that can be agreed upon after the silent partners give input and set money parameters around it. Then it needs to be followed. Pivots should occur after execution of the original plan once data can be assessed.

It goes back to SMART goals. There will be some giant over-arching "wishlist" but that's all it is. The real deal will be the day-to-day operations that sum up to become the actual plan. It sounds like structure is going to be the most important thing here, and these operational procedures should be followed to a T until data and only data says otherwise. Opinions of money providers shouldn't matter, only their conclusions based on data.

Hope this helps some how. I wouldn't start giving out shares based on "advising" from someone not in the trenches. I'd make it so they're either in or out, no middle ground (based on what you've typed the one capital provider with a capacity to advise doesn't have the time to do it anyways). Compartmentalize everyone is what I say. As far as what shares go to who, that's where the negotiations will come in and who can be convinced of their own or another person's leverage.

 

[CCarter]

1. You need to make sure whatever you setup there is no vagueness in compensation, no vagueness in ownership, and everything is crystal clear - otherwise people will get it in their heads one idea or another.

2. Also 3-6 founders is too many chefs in the kitchen - that's just asking for trouble especially if some of them have never worked with each other before.

3. Clear defined roles and responsibilities. Make it known what is expected and how much if any leeway there will be if they under-perform - and when they can expect to be let go if they aren't a right fit.

4. Compensation is difficult since if one person puts up the money to front everything and pay salaries to people that will be doing the work - they will most likely want the lion's share. As long as the deal is crystal clear and people have ways to exit without everything blowing up you might do okay.

5. I hate JVs cause they never seem serious. Setting up a corporation from the beginning with an operating agreement isn't a lot of money and it shows more commitment then weak and flimsy verbal agreement.

 

[propipper]

Mate, you need to add on G - a lawyer who will help you construct the agreement. As others have pointed out, there are a lot of issues with JV and most problems stem from lack of an overall understanding of what each person is responsible for. People feel like they're "doing most of the work" or feel like they're getting screwed over. It's even worse if you're all in different areas - ie. not being able to physically meet in person. There's always the tricks your mind plays on you about what the others are doing - so instead of getting work done, you're too busy worried about what the other people are doing.

JVs obviously can work out - it's just how you set it up. I've been part of an offline business JV that had an attorney, operations person and marketing person that worked out great. Each person knew their roles and each couldn't do the other person's role as effectively as the person designated to that role could do.

But then again, that was offline in our local area. When it comes to online JVs, it can be pretty scary.

Have you known these people for a while?
Do you know for a fact they can deliver what they say they can deliver?
What are your revenue projections?

I also know that A+B will get tired very quickly the longer they work and don't see any money coming in, especially if they're doing this on the side or in addition to their main line of work.