Build to Buyout
We build your product. You pay nothing while we work, or a reduced monthly rate, and settle the rest later, usually out of your first funding round.
Why it works this way
Giving a builder a fixed stake at the start rarely works out. If the build is quick, they’re overpaid. If it runs long, they’re underpaid. A deferred fee matches what you pay to the work we do, and buying us out means you keep your shares.
Paying for the build
The more you pay each month, the smaller your buyout later. Deferring more is a bigger risk for us, and the buyout terms reflect that. We agree the split with each company.
We can only offer fully deferred builds to a few companies at a time.
How it works
We split the work into milestones, for example technical setup, then an MVP, then your first paying users. We agree a day rate for the work.
We value our time at the agreed day rate. Whatever you don’t pay each month is added to the deferred fee.
Code, repositories, domains and accounts are registered to your company from the start. There’s nothing to hand back, because it was always yours.
You only owe for the work we’ve done.
We document everything and help you hire your first engineer, so your own team understands the product.
When one of the triggers below happens.
The buyout
You settle the deferred fee when the first of these happens. Until then, there’s nothing to pay.
That’s a round above a minimum size we agree at the start. You then choose to:
Cash paid to us is capped at 10% of the round, so most of your investors’ money goes into growing the company. If the buyout comes to more than that, the rest converts into shares on the same terms.
The time limit is typically 12 months after the build ends. If you haven’t raised by then, you can pay a lump sum at the same multiple as a cash buyout. If that isn’t possible, we agree one of these:
Because the cap is set at the start, nobody has to haggle over the company’s value at a hard moment.
If you sell before either of the above, we receive whichever is higher: the cash buyout, or what our shares would be worth if the fee had converted. This is standard in early-stage deals, and it means we share in a good sale.
The fee becomes payable in cash at once if the company sells or transfers the product we built, closes while it still has money, raises a qualifying round without settling with us, or stops being run by its founders.
HMRC says money from EIS investors that goes on paying off an existing debt is unlikely to count as spent on growing the company, and the same question can come up with SEIS. Our fee is owed for work already done, so plan for it. Pay us from money that didn’t come from SEIS or EIS investors, convert the fee into shares, or set the fee out in full when you apply for advance assurance. Your accountant can tell you which suits you.
Worked example
These figures are illustrations. We agree day rates, round sizes and caps for each deal. Move the sliders to see how the buyout changes.
£60,000
Of work
Four days a week between the two of us, for six months.
£42,000
Deferred on the reduced rate
You pay £3,000 a month, or £18,000 over the build.
£1m
Round, at £4m pre-money
The round that starts the buyout.
If you pay cash, the reduced rate costs less overall: £70,500 including the monthly payments, against £84,000. Less of our work was deferred, and for less time. Why we charge a multiplier
$80,000
Of work
Four days a week between the two of us, for six months.
$56,000
Deferred on the reduced rate
You pay $4,000 a month, or $24,000 over the build.
$1.5m
Round, at $12m pre-money
The round that starts the buyout.
If you pay cash, the reduced rate costs less overall: $94,000 including the monthly payments, against $112,000. Less of our work was deferred, and for less time. Why we charge a multiplier
Summary
We’ll come back with a scope, a day rate and draft terms, usually within a week. If we’re not the right team for it, we’ll tell you quickly.