Ask HN: We are shutting down our startup, I get our code. What now?
I'm a technical co-founder and invested a lot of time building our website, app, backend and CMS over two years.
My co-founder recently decided to shut the company down, focusing on what he/she does best rather than being reliant on tech/design loops by making our amazing designer create a Shopify site that he/she can manage him/herself.
Without going into details, it is fair but we will need to have serious talk once everything has settled so I can move forward.
Anyhow, as my payment for these past years, I get to sell whatever we have created, code wise, and get the dough for it.
The problem is that I have no clue how to properly handle a sell like this.
There is a bunch of new startups that has recently popped up, doing what we initially did with a caveat; they lack an app for it, currently hustling to make things work. So there might be a pretty good possibility for us to sell it.
To give you an idea what we are doing; an React Native app that sell and connect a very specific type of workshops with costumers over custom WebRTC Video chat(fork of React Native-based Jitsi Meet). What I can tell, I haven't seen another custom Jitsi-Meet integration yet that gives the ability customize the UI that we have.
We use Firebase as our backend and Stripe as our payment integration. Data entry / workshop scheduling is managed using a custom built CMS. We have custom emails + in-app notifications work through Firebase Cloud Functions.
Should I contact these startups? Anything I should do first, legally wise?
I'm clueless.
In this postmortem from 2019, @sad_cofounder candidly breaks down the dissolution of their startup, examining the fatal assumptions, misallocated resources, and market dynamics that led to its shutdown.
Community discussions on HN centered on identifying product-market fit early, avoiding vanity metrics, and the emotional recovery process after shutting down.
Since the overall tone here is so negative, I would like to point out that a) you can sell source code and b) some people do work on their amazing hobby projects without outside feedback and it still works out OK and c) helping people with their coding can be very rewarding personally
But where people here are correct is that in most cases, source code by itself will fetch a lower price than the customer contacts, email marketing lists, pre-qualified leads, ad designs, etc.
That said, we did sell source code at a good price a few times, but that only worked because:
1. The company buying it had overpromised to their customers and were contractually bound to deliver, so purchasing my whacky half-finished source code was cheaper for them than paying the penalty for not delivering on time. As part of the deal, we were also hired for a month to integrate their CI into the app and ship it. After they dodged legal responsibility this way, I believe they never used the source code again, but instead hired a team to rewrite everything from scratch. So they paid us purely for the time savings.
2. The software being sold had been featured on national TV together with a major Hollywood movie studio praising it. This started out as helping people for free and then we built without any feedback what we thought the market needed. But it was a ridiculously unbelievable stroke of lucky events that led to us sending a feature-limited version to studios and them using it and promoting it among themselves.
3. The source code being sold was rumored to contain an algorithm doing content-based image retrieval (think Google Images search) more efficiently than the largest publicly available search engines.
4. The source code was sold at a big loss. It would have cost 5x the price to hire a team to build it again.
It doesn't sound like you're famous yet or like you invented the next big algorithm, and you probably don't want to get paid scraps either, so your best bet if you insist on monetizing the source code would be to find the one medium to large company that urgently needs this video chat to work or else they face horrible consequences. Only then will you get a good price.
- Write, sign and notarize an agreement that the code is either duplicated or transferred to you.
- Decide who gets the data: users, you, someone.
- Sanitize servers and services by trying to overwrite data with junk values before canceling.
- Cancel monthly services and free services.
- If it was good, don't let the team relationship go to waste. Talk with whoever's left / worked-with previously about doing something else.
---- Then and only then ----
- Do "consultingish" work or solve a problem you have to find a problem worth solving.
- Sell something good people want before you invest too much time/money/mental health building something too much.
- Keep it real: building "your amazing idea" without a feedback loop gathering critical data from paying/potential customers is #fail.
- Someone though will have to step-up to be the sales/buzz builder or one will need to be found (hopefully, someone you've known for some time or a friend-of-a-friend). No useless "idea guys" allowed.
- Sales/buzz person or someone will need to be the captain of the ship ultimately in-charge of everything.
- Iterate fast, executing based on feedback and sales numbers. Prefer the best one you can get into if you can. (YC, hihi.;)
- Everyone at the beginning gets equal equity vested over 3-5 years. First employees should get ~1% equity, more if it's an employee-owned co-op.
- Don't pray for funding, sales/profit cures all.
- Raise funding only if you could definitely grow faster with more money.
- Skip accelerators unless you need a network and/or are relatively inexperienced.
- When you get big enough, incorporate (California or Delaware C-corp). If it's s consultancy, LLP or LLC. https://clerky.com ↗
My own experience with these types of things is that the software is not worth much at best and most likely worthless overall.
Software without a market and customers already using it is basically worthless. If you were in a hot market and had clients a competitive startup might offer some decent money but it’d be mostly for the customer list.
One time that software can hold value is when you have a unique patent or have invented something that is truly new and revolutionary. Think scientific software algorithms or long standing problems where your code can be integrated quickly and solve a problem that isn’t something people can easily replicate with just some time.
For the most part the sounds of your code is that other people could replicate it fairly readily with just some time. I am not criticizing anything, just saying it doesn’t sound like you invented anything truly new. More like you guys put things together in a way to solve a problem which likely had value to people but not enough for the software to hold substantial value without a market and user base.
You can of course try and maybe you’ll get lucky. But I’d likely say you’d have better luck carving out a library or a complete product and open source it. Then sell consulting services around it and maybe host it etc.
The costs are sunk, your best bet is trying to use the software as leverage, not trying to sell it outright. At least that’s been my experience when I had companies fail before we had real traction. I did have one offer for like $5k on software we spent ~600k developing. I held the code and integrated parts into other projects that went on to make me money.
Good luck, and maybe you can prove my experience isn’t true today.
I don't feel qualified enough to advise. But here is what I did after folding my startup
1. I used it as a very expensive resume. Costs me a few hundred dollars in running costs on AWS but pays back regularly by helping me win new consulting clients.
2. Mine was a travel startup so had few reusable modules e.g. booking engines for various GDSs (Sabre, Travelport and even Expedia's API). I manage to sell these with little modifications to a few companies that were building things from scratch. After initial sale and a minimal support period, further support was charged at consulting rates.
3. Initially I thought that I would be able to sell the whole development stack specially the user management, email verification, security, PCI compliance payment solution stack etc. But never found any takers for that part of the code. Don't really know why.
4. I initially folded my startup because of lack of experience in sales and marketing. But I am plugging those holes in my competence and I might resurrect this startup in a couple of years from now. I am glad that I never gave up my rights to any part of the code or technology.
Not sure if any of above is relevant to your particular case except #1 which could be useful if you decide to do consulting/freelancing in future.
Edit: formatting / typo
Hey! First off, I'm really sorry... no matter how cordially things end, it's always hard to see something you cared about and worked for come to an end.
As far as your options, I agree with everyone here who says you likely won't have much luck selling the code. People rarely buy code; they buy customers or revenue. It doesn't seem like you have either, and I don't have much to add there.
BUT! You do actually have something you can sell... your experience. Your last two years weren't a waste. We've hired founders at my company before, and they're great... they have an amazing mindset, are great at making things happen, and tend to be ambitious. These two years of experience are going to make you very valuable to someone. Like you said, there's a bunch of companies out there doing something similar. They don't need your code, but they'd love your experience. You've spent years understanding the space, thinking about the market, and getting a first-hand technical understanding.
I'd think of it that way... this is an amazing resume for you. You'll be able to turn this into money, just not the way you're currently thinking!
Good luck :)
Sad Co-founder here, first, thanks so much for all the (still incoming) answers. This is invaluable for me to be able to fully learn and move forward from this experience. To answer some the overall questions I've seen;
* The company will be completely shut down, no more b-corp.
* I own < 50% of the company
* My co-founder will continue based on our last pivot minus my technical knowledge.
* I would love to be able to chill on this for a while, but my co-founder want to move forward and close our old business down by the end of this year so that he/she can close all tax/business stuff.
* My co-founder invested money to pay our designer / product owner, I invested my time.
* We had no real customer traction due to our (now in retrospect, bad) decision to pivot away from the app we worked hard to release, not maintaining it and work on v2 of it instead. It sucks because through my co-founder, we had serious reach through social platforms such as Instagram, but we also knew the initial business model couldn't scale so we had to pivot.
* Deep inside I knew our code would be a hard sell and I see the bigger picture now. Thank you all for zapping me out of it. I do think that cross-platform WebRTC integration has some value, but as some of you point out, my knowledge is probably more valuable than the code it self. I will reach out to all of you who have pinged me. I might be up to join as a contractor for some time, to help out with knowledge transfer / maintain the code.
* Since my co-founder will still work within the same market, I can't open-source the code without causing friction I'd say. So might not do that.
* I consider my co-founder a really close friend so it is of high importance for me to keep our friendship intact. For us to be able to do that, I need to figure out what is fair so all of your comments really helps!
I'll keep on answering questions as they come. Again, thank you all for your answers.