What to do with my startup?

September 20, 2006 9:12 PM

What should I do with my internet startup business?

At the beginning of the year I started a startup with some friends. It's a really good Web 2.0 idea; we have been offered funding several times. Unfortunately, in the past few months the team members have had other pressing issues in their lives. It doesn't seem that anyone on the team, myself included, has the time and energy to make this a successful startup.

A little background: the project has a similar infrastructure to multi-user websites like eBay, del.icio.us, or MySpace. Money exchanges might take place between users on the site, and there are of course ways to make the site profitable.

So now we've got a lot of functioning code, although the software needs some more work before launch. What do I do with the project? Some options I can think of:

* Can I sell the startup, along with our intellectual property?
* What about open-sourcing it, so that the code becomes open-source but the users' data is kept private? (Just as the SourceForge or Connotea websites are open-source.) How much effort would it take for me to maintain ownership of this project? What resources are available for me to learn about doing this?

Note: I know that everybody's going to be gung-ho about the open-sourcing option, but remember that I and my startup team have poured hundreds of hours into this project and want to consider ways to compensate ourselves for having done so.

posted by lunchbox to work & money (6 comments total)

If you have been approached about funding why not pursue it? You don't need a complete product to find angel funding. As a mater of fact if it is too far into the development phase it will turn away angels. If you can't pursue the project full time you could stay on in a consulting role with a founder's share that could be very valuable sometime in the future should the enterprise go public or be sold to someone.

A caveat. Lots of folks will come out as angel funders or even VC's but they are just scam artists. I speak from experience. If you do decide to seek funding please read The Silicon Valley Way as it will let you know how real angels and VC's work. And no I don't have any connection to the book.

"What about open-sourcing it, so that the code becomes open-source but the users' data is kept private? (Just as the SourceForge or Connotea websites are open-source.) How much effort would it take for me to maintain ownership of this project?" I am not sure how you would do this but it is exactly what livejournal did. The software is opensource but the web community is a private business. It may be worth reading up on how they did it.
posted by arse_hat at 9:55 PM on September 20, 2006

The software is opensource but the web community is a private business. It may be worth reading up on how they did it.

One of Brad's roommates was one of my friends in business school. Basically, he coded LiveJournal, launched it on a server (he's an IT consultant... or was, really, before he launched livejournal) he had sitting around, and then as he needed to upgrade hardware and rearchitect he asked his users for money. They dumped money into a tipjar, he bought the server.

After a while, there was more code work than he could handle himself. So he opened up the codebase and allowed other people to help him work on it, and eventually created pay-site options to pay for the big server farm they eventually accrued. The data is completeliy separate (in databases, derr) from the source code, so it's no problem whatsoever to keep the software separate from the data.

It takes effort to stay on top -- you need to be able to be fair about accepting good contributions and a dictator about squishing directional moves that you don't think are good while still maintaining your programmers' interest in the application. You have to accept that you're going to piss people off a lot and be OK with that. You've got to understand that you'll be reading more email than writing code, and be OK with that. Linus Torvalds has written a lot of good stuff on how to manage open source projects well.

Understand that either way (VC or OSS), you need to give up a lot of control over your project. The big difference is that VC will force you to give up your vision and make you manage day-to-day, and their goal is always to monetize the project. OSS will force you to give up day to day management of the project and will force you to focus on the vision and guiding everyone else towards that vision.
If you aren't good with interpersonal management, go the VC route. If you can manage a community of developers, I think the OSS route would make me sleep better at night.
posted by SpecialK at 10:06 PM on September 20, 2006

At the risk of sounding rude SpecialK I would change "VC will force you to give up your vision and make you manage day-to-day" to "VC will ask you to clarify and articulate your vision and force you to give up management to a professional management team." And, let me add, while giving up management to others can be painful if you are a coder or a visionary it is in the long run usually for the best.
posted by arse_hat at 10:19 PM on September 20, 2006

I'm not clear, are you and/or your dev crew sticking with the project or are you all leaving. I think you'll find interest will be greatly diminished if the latter. Were your earlier offers of financial support based on the assumption no one was leaving?
posted by scheptech at 10:25 PM on September 20, 2006

Some folks have been selling their web 2.0 apps on ebay - kiko just went for $1/4million, and there are a couple others on offer for a few $thousands. Bear in mind kiko had a lot of users and a well developed AJAX site, the others seem to be drawing less interest.
posted by MetaMonkey at 2:25 AM on September 21, 2006

You (deliberately I assume) don't say what the site's purpose is, but are there communities of people in a topic related to it's purpose? If you're interested in selling - and I don't see why you couldn't - I'd start sniffing around there for people who look like they have the funds and/or the abilities to take it on past where it is now.

I suspect that your ability to sell will have as much to do with what research & documentation you have on the desirability of the site and ways in which it can make money as the actual code you have already developed. The problem with enthusiasts is that many of us have our own personal preferences for dev platforms. I'll code in FORTRAN again if someone will write me a check, but for my personal projects there's just two I'd take on working in just because of my own enjoyment & comfort level.

I'm hesitant bother to say it since you didn't express any interest in taking that venture money but since it was brought up...

SpecialK and arse_hat are both right about external funding, but here's the core truth about taking money from anyone: they want it back, and then some.

If the benefits arse lists are worth the "then some" to you, take it. But don't for a nanosecond forget you will have to give it up. You'll have to determine what amount that "then some" is but I'll point out that it's more than 0 so you should comparison shop in some way.

Having run my own (failed) business, the #1 thing I took from it personally is "Don't quit your day job before you have to." My corollary to that is "do everything you can do in your spare time."
posted by phearlez at 2:28 PM on September 21, 2006