The parties:
Tech company: We are a development company with two offices, one in central europe and one in eastern europe
Startup: A startup founded by two non-tech founders from the finance industry
Initial Agreement:
Roughly 5-6 years ago we (tech company) agreed to build and launch a first version of the product (a trading platform) for the startup and maintain it for 4 years. Tech company would put together a dedicated team needed to build and maintain this platform. Startup would cover the basic cost of the development team (salaries, insurance, office, ...) without any markup. For that, the we (tech company) received 10% in equity pre-funding.
Situation now:
The platform has been successfully launched and maintained for 4 years. The platform went through several iterations of improvements and new features.
There has been a seed funding round at a ~15 Mio evaluation leaving the two founders of startup at ~51% of shares and us with around 7.5% after dilution.
The dedicated tech team (hired by tech company) consists now of a CTO (which is "our CTO", e.g. the CTO of tech company) and 4 fulltime Software Engineers.
Startup is ramen profitable now with a revenue of 0.5 Mio USD in the first half of 2021. Expected growth of revenue +50% in 2nd half to 0.75 Mio USD in H2.
The problem:
The initial contract is expiring basically now. For several reasons it makes sense to transition the tech team (CTO and 4 SW Engineers) from tech company to startup, main reasons being that startup should not be "depending" on tech company, the startup should have its own CTO and tech team (important to future investors) and the startup does not further need to proxy "access permission" to sensitive data from customers to tech company.
We all agree its the best way forward to make this transition of the tech team and that tech company offers managerial support for this transition for the next ~2 years by founding a legal entity in eastern europe (as subsidiary of startup), finding an office space, transition the team, possibly hire new team members and see that things go "smooth".
What we cannot agree on is what a "new deal" could look like or what principles to apply here.
Any inputs, opinion or advice are very welcome. Thank you.
Basically: get the ties cut as quickly and cleanly as possible if the goal is to get the startup to stand on its own two feet with the tech company becoming just a line item on the cap table after that. (The office manager would have to cheaper than staying tangled together.)
If that’s not the goal, perhaps leaving things as-is and extending the contract with the employees being billed at some markup is now okay.
If I were the startup and had a path toward growth and profitability, I’d want the transition to take 2 weeks for the majority and 2 months to complete, not 2 years.
Why? It sounds like the relationship worked out great so far.
Have they considered acquiring the (tech) company? Is the startup the only customer of tech company? Where's the startup headquartered?