THE STARTUP-CORPORATE CONTRACT. AGREEMENTS AND COMMITMENTS

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Once we have managed to "sell" and get the corporation interested in our product/service, we must together establish the principles of the agreement through a contract. It is very important to have well drafted and designed contract. To achieve this, it is vital that you involve your legal advisors and work with them.

In this TIP we will look at the most important agreements and compromises reached between startups and corporations.

As we are speaking in a very general way, we will focus on those points where misalignment between the parties tends to occur or which are vital for good collaboration:

CONTRACTS

They will be the documents that ensure the legality of the collaboration on both sides. Although from our Startup we have drawn up standard contracts, in most cases, when collaborating with larger corporations, the latter's model contract is used. On some occasions, The corporation may not even be able to sign external model contracts, Or worse, it may involve several legal departments and the process may take weeks. So, if possible, it is best to use corporate framework contracts.

This does not mean that you have to accept the conditions they set you, nothing of the sort, simply that using such a contract "template", the process will move faster. Everything in a contract can be modified, discussed and negotiated. Everything. Even when you're negotiating with corporations 1,000 times bigger than your startup. Your negotiating skillsThe focus is really on fighting for what is important and common sense on both sides, will make the process more or less laborious. Please also note that, apart from the partnership contract, internal corporate policies often have additional documents to sign along the way: Confidentiality Agreements (NDA), Letters of Intent, Internal Audit Reports, Anti-Fraud Reports, Security Reports...

FREEMIUM AGREEMENTS

It is very common for collaboration to start with a Pilot or Proof of Concept (POC). The objective of a pilot is to demonstrate to the corporation that your solution works for their business. This sentence is important. You must not only demonstrate that your solution works, but that it works for their specific case. The development of Pilots or POCs allows the corporation to validate your solution and therefore to enter into larger or longer contracts with a greater guarantee of success. Although corporations often ask to be able to "try it out for free", through cost-free pilots etc., ideally during this pilot you should at least be able to cover your expenses. If you can't, make sure that the dates and objectives of the pilot are well defined and that they will not be extended over time.

At the end of the day, if you trust your product, it's great that the corporation can test it first, as it will open the doors to more substantial contracts, with new business verticals, in new countries, with greater reach...etc. Try to design these cost-free tests for your product and industrialise them as much as possible. If they are well-designed and well-defined, it is a good process for both parties.

And very important!!!: learn to say no if the POC conditions are too onerous for your startup (e.g. requiring exclusive support, etc. ....). The POC should allow you to do other things as well, not 'bog your startup down' with a potential client waiting for a decision that may take months to come. 

TARGET AGREEMENTS

Once you sign partnership agreements: service contract, product sales, pilots.... Make sure that the objectives, scope and conditions of services are well defined. If your product/solution has e.g. associated success targets: sales, margin, other KPIs, try to manage them in a flexible way, in an estimating way and above all in agreement with the partner. Try to ensure that the performance of your product/solution does not impact your service fee or incur penalties. Examine every possible contractual loophole that could play into your hands in this regard.

The same applies to the definition of the Service Level Agreement (SLA). Try to deal with this issue in the most flexible way for your interests and protect yourself against external factors outside your solution/product. In this respect, take into account possible requests from specific and dedicated support persons, and decide whether you can afford it. Remember that in collaboration contracts it is as important what the product/service includes as what it does NOT include. Take this part very seriously and make sure that there is specific wording on objectives and parts that are outside the scope of the collaboration.

Commitments of the parties

It is important to be able to clearly define the commitments of both parties. In most cases The failure to meet these commitments is what determines whether a partnership is successful or unsuccessful.

Commitments include

• Meeting project deadlines: implementation, training, start-up of the product or service.
• The involvement of teams from both sides: corporation and startup.
• The sponsorship of collaboration by members of the corporation with sufficient capacity to unblock internal affairs.

E.g.: Imagine that you reach a partnership agreement with a corporation that involves 2 months of implementation of the solution in the company. During the start of the partnership your main partner disappears, or the company changes its priorities... etc. The agreement is not broken but the implementation is stretched out in such a way that it does not allow the Startup to free up its limited resources to focus on other opportunities/projects/customers. It is important to shield (as far as possible) the commitments by means of clauses: Project Stoppage, Restart Fees, Additional provisions for changes in dates, scope, equipment... Think that you are contracting with the corporation, not with the people you talk to or form the agreement with. If they change projects, or leave, everything should be very clear in the contract to avoid problems.