If you run an early stage tech or Internet company, you might relate to Lando Calrissian. Lando was running his small cloud-based business when the Empire (insert your favorite $100B plus market cap player) showed up and made him an offer he couldn’t refuse. Reluctantly Lando agreed to their terms, but the deal just kept getting worse and worse.

Lando

Don’t give into your anger – after all, if you strike down negotiations, you will never sell more than you can possibly imagine!

Although you will never dictate terms to a much larger prospective channel partner, being aware of six key items will limit your risk and enhance your upside:

1) Non-Compete vs. Non-Disclosure – As a preamble to entering into negotiations, you will be asked to sign a non-disclosure agreement (NDA). It is tempting to sign this quickly and proceed to doing a demo and negotiating a deal, but make sure you review the document for non-compete language. Non-compete terms can be overly restrictive and are generally not applicable to a channel partnership. Non-compete terms may not ultimately be enforceable, but save yourself potential headaches and only agree to non-disclosure.

2) Indemnities and Warranties - If your new partnership goes well, indemnities and warranties may never come into play, but; a contract is there every bit as much to protect against downside as it is to enable upside. When you enter into negotiations with a much larger prospective partner, they will almost certainly provide you with their standard boilerplate contract. Every time I have received such a contract, the indemnities and warranties were written largely to the benefit of the partner who did the drafting. You will have a high success rate if you inform the channel partner that you require indemnities and warranties to be mutual as it is generally difficult to justify doing otherwise.

3) Understand how long it will take to get paid – You would be surprised how many early stage partners I’ve heard express surprise (and dismay) at how long it takes to get payment from their channel partner. Assuming your deal is structured as a royalty split between the two parties, most enterprises will want to report royalties to you on a quarterly basis. Once reported, you may have to issue a purchase order to your channel partner and their standard payment terms could add another 30 to 90 days before you receive payment. Understand how this impacts your cash flow and make sure you can absorb delays.

4) Know the Channel Partner’s EULA – An end user license agreement (EULA) is the contract under which your channel partner will sell your product to their customers. Early in the negotiations, request a copy of the EULA as well as any referenced handbooks or documents. You will not likely be able to affect any changes to these documents during the course of negotiations, but it is critical that you can work with the terms and conditions contained within them. Pay particular attention to support obligations and most big tech companies will want to provide their customers with 24/7 support.

5) Term and Termination – Your early stage company will never be in a weaker position than when you negotiate the initial channel partner deal. The term of an agreement and termination clauses contained within it don’t necessarily dictate when the partnership will end, they also provide opportunities for business terms to be re-negotiated. Make best efforts to align the initial term of the agreement to a planned milestone in your product roadmap – if you have a significant upgrade or new product release timed around termination, you will be better positioned to negotiate new revenue opportunities (and maybe even a better royalty split).

6) R&D Tax Credits – Most governments offer tax credits for eligible R&D work done within their jurisdiction..These credits can be very meaningful for early stage tech or internet companies and predicated upon conditions such as ownership of the intellectual property or having an exclusive license. If you are licensing technology to your channel partner, make sure you understand the impact that license will have on tax credit eligibility.

Of course, the best advice I can offer you is to engage legal counsel when negotiating any contract, but if you give consideration to the six items above, you will be off to a good start to getting a deal you can grow your company with.

17. July 2014 · Write a comment · Categories: WEM

Ever since Napster opened the digital door to sharing and downloading music and movies, content producers have been fighting one battle after another in a war to slow the inevitable disruption of their industry.

While some point to iTunes and other legal downloading sites as proof that content can capitalize on online distribution,industry financials paint a clear picture to the contrary. In 2013, digital track sales fell 5.7% and album sales fell 8.4%, according to Billboard. Total U.S. music industry revenues were $7B in 2013, compared to $18.5B in 1997 adjusted for inflation (thanks Yahoo!).

Today, the most successful content creators actually don’t make their money through their “art” – they, leverage it to build cross branding licensing opportunities. Bobby Kotick, the chief executive of Activision recently announced that Aerosmith made far more in revenue off of its Guitar Hero: Aerosmith video game than from any of their albums.  LeBron James may have just signed a new $21M annual deal in Cleveland, but he made more than double that in endorsements last year ($53M to be precise). Oprah – the women who leveraged an engaging on air persona to go from Chicago morning show host to the “queen of all media” is worth an estimated $2.9B.  She has her own television network and magazine,has created best selling authors just by mentioning a book on air and even has her own line of tea at Starbucks.

You can download Aerosmith on iTunes, but the band makes their real money off of Guitar Hero and roller coasters.

The value of affiliating brands and products, clear for so long with celebrity and amplified by digital disruption, has impacted the way companies market to consumers online.

Content marketing (attracting and retaining customers by creating and curating relevant, valuable content) is not an entirely new trend, but it is an expanding one and an area where many startups are developing products.  Two interesting companies which I have looked at in this space are TruCentric (recently acquired by Acquia) which tracks user behavior to offer highly customized content experiences (even to anonymous users) and ThisMoment.  ThisMoment is particularly noteworthy as it integrates socially generated content in real time to create what it believes consumers will see as a more authentic brand experience.

Selling content in a digital world is a tough value proposition with many challenges and threats, but content has also never been more important to building a successful brand. Technologies which allow brands to scale, automate the marketing process and more accurately deliver engaging content are onto something big.