Experience coding for equity. Results for 8 years

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Hello. We summed up the results of our work over eight years of work, considered projects where our studio was a technological investor, analyzed successes and failures. Despite some progress, we came to the conclusion that coding for equity does not work.

Under the cut - a description of the reasons for abandoning the practice of technological investments, the reasons for the failures of projects that we coded for equity, and different schemes of work with the founders, depending on the time period, the size of the studio, the market situation. And also - a little sadness, philosophy and lyrics.

Every web studio wants to be a grocery company. Each is looking for its product in its own way.
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Our studio, like hundreds of others, was born normally - we left freelancers who received more orders than they could do in four hands, and therefore began to hire employees. The only difference was that from the very beginning we chose a niche of technically complex projects (in 2006 the word “startup” was not in use). Nothing makes sense in business, we understand our narrow market, on which we still work.

The very first experience of coding for equity began simultaneously with our birth in 2006. Then we found an entrepreneur who developed an online project of private ads, without having any technical background. We have taken on the development of the system. From plans to seize the St. Petersburg market, and then - the whole country, nothing came of it. Six months later, investors backed off, and the founder came down with a nervous breakdown, after which he never came to his senses.

This story upset us, but optimism took over and from the first project we gradually moved into the second.

It turned out that all the stories of our internal and coding for equity projects differ from the stories of other web studios. As a rule, studios develop a project - solving their own pain, which cannot be solved by existing instruments. All the ideas that were born inside the studio and were brought from outside were not the solution to the studio problem or its founders.

The offer to invest in equity came to us from the founders of startups who didn’t understand at all or didn’t know much about technology. It was assumed that, entering the project, we not only undertake the development, but also close the technical risks.



Our coding for equity can be divided into several periods depending on the year and the scheme of work.

2006-2009

At this stage, we were part of the project partners with the right to manage and partially assumed the responsibility for the development of the business part of the project. The agreements were fixed in writing, but not legally.

The decision on participation was made on the basis of the adequacy of the author of the project. To make a deeper analysis did not allow the lack of experience.

None of the projects did not live up to our time.



In the meantime, all ideas were viable. Simultaneously with the drive started Avito, which now feels great. LinguaLeo lives and flourishes, and i-Language has quietly died.

2009-2011

After the first stage, it was understood that it was very easy for the founders to close a project in which they had not invested their money. Therefore, a new practice was introduced to cover (by the founder, the investor) all or part of the expenses. Covering a part of the costs meant different things in a different project: one project paid only those expenses that we gave away from the studio, the other compensated part of the expenses for the team. The amounts depended on the amount of development.

During these years we developed the minimum MVP, limited to the minimum shares in the project and were removed from the management. Our participation in the projects has already been legalized, but very awkward. For internal projects, we used the same approach — developing a minimum viable product and a quick launch.

At this stage, having survived its first crisis of 2008, the studio began to grow. We launched several large projects, began to do HackDay, set up internal processes, in short, became a business. And then they realized that the business of the studio is unscaled and low-marginal. Launching your own project, internal or for equity, has become a goal.

2012-2014

From the experience of the previous stage, it became clear that a complete elimination from management was also a bad idea. Therefore, we returned to the model, which implies participation or influence on the management of all aspects: sales, marketing, etc. Our work was paid at cost plus 5% airbag.

At this stage, starting with the restaurant project, we launched together with partners a process in which ideas and business models are developed, then a co-founder is sought for a specific project, which becomes the project's CEO. The studio entered as a technical partner and took upon itself the closure of technical risks, the development, HR of ordinary programmers and SRT in projects when they became independent. Such a model, in my opinion, has little to do with coding for equity, for us it became the final experiment. On the last draft of the table, the studio left the accelerator, which means non-participation in the next rounds of projects.

The partnership had clear processes of interaction with the studio, partners, and performers, as specified in the contracts of the offshore company.

We developed and tested MVP. If he did not go after several attempts, they closed the project.

Also at this stage, the HackDay School was launched - a 100% studio project that is still working.

Reasons for not practicing technology investments

I see the main reason for the failure of coding for equity in the absence of full involvement in the business of a technical team and control over the business component. You can not shift the responsibility for the business on other people's shoulders. The remaining reasons of a lower order are: immaturity of leaders for business, lack of understanding of the specifics of the market, lack of understanding of what to do with the product, how to develop it and change direction.

What you tried

The projects were with offline component and without it, with experienced founders and novices, simple and technically complex, with and without a contract, with a legal entity in Russia, with a legal entity in a delaware, without legal entity; invested and not; made with the money of the founder and the parents of the founder, running from the money from the sale of the car, projects of friends and people from the street, launched intuitively and from books.

The result in any of the cases is not happy. Even if the projects do not die, they still don’t bring money or bring in disproportionately spent time.

Pros and how it ended

According to the text, it may seem that the time spent on coding for equity was dramatically long, however, this is not the case. The main time the studio has developed as an outsourcing developer, and in the next few years will continue to work in this market. In addition to the last experience, employment on their own and technical investment projects was no more than 10%.

The most valuable thing we got is experience. So far, the projects are working, and in connection with the fall of the ruble, they will have enough dollar investments for a long time. The studio has a decent percentage in five projects, and now the question is whether they will take off or not. We sold a part of a stake in one of the projects and got a small amount in our hands ( this is a successful semi-exit, damn it! ).

With partners failed, we went without a conflict. All of them are wonderful people, many of whom are now developing their business, if not explosive, then successful.

For a year now, the studio has been developing its own personalization project REES46 100% on its own. There are no rapid jumps in its development, we develop smoothly, but we control all directions ourselves.

That's all.

You can ask questions and share your experiences in the comments.