April 18, 2019

Ask IH: Code review for side project sales

Hey everyone,

Just wanted to know if anyone has sold their product before and what is the best practice when the potential buyer wants to do a code review before buying?

Is this something that is obtain in practice without losing control.

Looking forward to your thoughts

#ask-ih

  1. 1

    I can understand the apprehension and so should they! Feel free to literally say "This is IP, so you can understand my apprehension." in your initial response.

    I haven't sold my code, BUT I do have a formal business education, have been an advisor on a few transactions for friends, and have many friends in IB/PE/VC. So I do know more than your average bear about those types of things.

    First, think of your software like an "asset," just like you would a car, home, or business.

    They should have a preliminary offer. Think: "We want to buy your software for $X,000." Hope there are offering something with a few commas ;). Also, they should sign a letter of intent and/or an NDA before you give them anything since you are selling IP.

    https://www.strictlybusinesslawblog.com/2011/07/28/buying-a-business-here-are-6-items-that-should-be-in-your-letter-of-intent/

    Only AFTER this, should any type of code review (due diligence) happen. This is a legal way to protect yourself -- if they don't buy, but use or replicate aspects of your code. If you're selling for more than $10K, it would probably be worth it to bring a professional M&A attorney or banker in.

    If they won't sign these docs -- they are certainly negotiating in bad faith (they want to f*** you).

    Another way to protect yourself is to see if you can patent your idea or code -- might be expensive though.

    Again, I don't know what they are offering, but if it is a large transaction (to you), I would seriously consider bringing a person in who does this for a living. There may be a retainer involved, and then a % of the purchase price should the sale close. This incentivizes the professional to not just collect your money, but make the deal work.

    If the deal works:

    Purchase price - retainers - % of purchase price = money you get.

    If the deal doesn't work:

    You lose the retainers, but gain transaction / negotiations experience and a professional you can come back to, should you get another offer.

    As far as the actual sharing of the code, that's where you'll have to get advice from someone else, but hope the above helps!

    Good luck!

    -@rickpower

    EDIT: just saw your are based out of Nigeria, the above may be invalidated if you are selling across borders (cross-border) but if not, I hope you can find these protections in your country!

    1. 1

      Hey @rickpower. Thank you for your response. From your last statement it may seems that NDA or letter of intent doesn't offer much protection for cross-border sales.

      I understand the need for a broker for a large sales but not in this case.

      But again, is code review really necessary for a small project?

      1. 1

        Maybe a high-level overview and explanation of how the data flows, but definitely not line-for-line code review.

        You could commit to a line-for-line code review to integrate the software post-sale. Have a timeline ready.