Equity and compensation for boot strapped venture


6

I have been approached by a friend to help with the business side of a venture that he has developed/bootstrapped. No external funding until now. He has developed a working product with outsourced and his own development efforts. He has incorporated this company already. However, there are no paying customers in the target market. He has asked me to help him do one of the following:
1. develop a revenue generating partnership
2. sell the product and technology to an interested party
3. help raise funding so that the business can scale

I am being offered a 20% commission on the gross amount that I bring in through 1), 2) or 3). He also mentioned that if we went with option 1) then he could bring me on board with the company at a mutually agreed upon company ownership and commission structure.

Is the above compensation of 20% commission and no equity in the company reasonable?
My concern is that if I were to draft the sales pitch, prospect targets through my network and help close the deal, he could really stick it to me by either not giving me sufficient equity or not bringing me on at all as he will have at least one referencable partner/customer.

What are some fair terms that I should be asking for?

Thanks
Paddy

Bootstrapped Funding Equity Terms And Conditions

asked May 25 '11 at 16:30
Blank
Paddy
31 points

1 Answer


1

  1. develop a revenue generating partnership
I think you mean "He wants me to sell for him." When you say "partnership," you're talking about a legal entity. I think what you're describing is probably an affiliate arrangement. Depending on the dollar amount, and the amount of effort to sell, 20% could be generous or it could be crap. You need to honestly weigh A) Your ability to sell B) The market demand and C) the amount of time you can put in. You may need to make a few test calls just to answer those questions, but that will help you justify a "fair" number.

  1. sell the product and technology to an interested party
20% is much more than a typical business brokerage would charge. If you can pull this off, you're doing well.

  1. help raise funding so that the business can scale
I've seen finders fees anywhere from 1 to 5%. If he's going to give you 20%, and you can line up the money, that's awesome.
answered May 26 '11 at 13:20
Blank
Calvin Froedge
534 points
  • +1 for suggesting making a few test calls so that a baseline can be established. – Kenneth Vogt 9 years ago

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Bootstrapped Funding Equity Terms And Conditions