- Posted by Samuel Gely
- On May 15, 2017
- 0 Comments
The IT for Equity financing model enables startups to access technological resources at a crucial time in their growth. This strategic financing model quickly provides startups with additional development force and acts as a growth lever. This model is mostly for startups between the Seed and the C rounds.
This method of financing technology in exchange for equity participation raises a few issues, such as who owns the technology developed jointly by a startup and Pentalabbs? It is also common to wonder about the difference between “classic” outsourcing with the Pentalog Software Factory and our IT for equity model.
Outsourcing with the Pentalog Software Factory
Outsourcing is an effective strategy for companies that do not have the necessary tech resources to grow. The choice of IT outsourcing can be partial or complete depending on the needs of the startup. These needs are measured and evaluated by a consultant or project manager and then a proposal of outsourced teams and solutions is sent to the startup.
The cost of outsourcing is often less expensive than creating and managing the same services in-house. In fact, it is necessary not only to look at the unit cost per developer but at the full cost of recruitment which includes the time spent setting up an internal team and the time spent implementing and perpetuating working methods (agile, continuous integration …).
Outsourcing provides both flexibility and reactivity when implemented, especially thanks to the expertise of Pentalog’s 1000 IT engineers.
“Need a team of 10 Python developers? You can start a team in as little as a 2 weeks’ time and have it ramped up and fully staffed in a maximum of 6” Frédéric Lasnier, Founder & CEO Pentalog.
Outsourcing is also a guarantee of peace and security. You will never have to worry about troubleshooting nor service interruption. IT management tasks are often tedious and time-consuming. Outsourcing these tasks allows the company to focus on its core business and Innovation.
Technology in the case of outsourcing belongs to the company that buys and pays for the outsourced service.
Financing technology needs with equity via Pentalabbs, while remaining the product owner
During an IT for Equity investment Pentalabbs provides startups with the expertise and resources of the Pentalog platform and in particular with the development skills of the Pentalog Software Factory; in short, we are providing the tech and tech skills startups need to continue developing their project. With this type of participation, a startup lacks the strong technological resources needed to execute its roadmap and thus reach its next business milestones.
This technology contribution is made to the startup in return for shares of capital in the company. In this way, a startup does not need to use its own funds to acquire new resources and their cash flow is not affected. On the contrary, their funds are likely to be reinforced.
Through this participation in a startup’s capital, the interests and growth objectives of the startup become common to those of Pentalabbs. This method of financing allows us to work as a strategic partner to the startups we invest in. Our share of capital will always be a minority amount. So even if we own a share of the capital, everything that is developed by Pentalog’s dedicated teams for the startup belongs to the startup. The intellectual property of the startup is safe and sound!