How should I get compensated for co-founding a new company


3

I have been involved in a particular industry for some time, opening my company in 1983 and selling app 25 years later. I enjoy the industry and have a good grasp of how to build a successful company in the space. I was approached by a very well funded group with substantial assets under management familiar with me and who I have done other business with since to open a company in the space. Their strategy is to use the company as a vehicle to execute their asset disposition needs, which are currently outsourced entirely to companies across the country similar to the one I owned, allowing for greater control over the due diligence, acquisition and disposition process leading to better trades and more robust margins. The end strategy is to build a national footprint and sell to one of a number of potential national players in the same space when the market ripens. My role as co-founder would be a director, business systems visionary and overseer of the growth and trajectory of the company. While I don't envision this being a 'full time job'. nor do I want a 'job', I do envision there being a lot of time put into creating the working components and strategies and enabling the proper execution lending to the growth and success of the company, particularly in the first few years, including travelling and acquisition of smaller companies in the space in markets we want to be in. When the vision is mature, the company should have revenues of $25 million+ with a net pretax margin of 12% and an anticipated exit value in 6-8 years of $15-20 million subject in industry multiples at that time.

The total dollar investment, exclusive of any compensation to me, will be in the range of $3 million. While I am willing to make an investment, I am not sure that I should, and believe my 'skin in the game' would result from my investment of time and expertise. When I built my original company from a 432 sq ft office in 1983 to a mid sized regional footprint that I sold 25 years later, I was making around 400k a year from the business directly reasonably full time and was able to work on other non-related businesses in the same space, running my core business through an effective leadership team and maintaining a leadership presence. I cant speak to what the business sold for, but it was in line with industry standards for its day.

I don't need salaried compensation, and would prefer to be paid based on results, in a manner such as founder shares and profit participation.My question is, What would a fair compensation arrangement/package for someone like me be in something like this.

Sorry for the long dissertation, but I would appreciate input from anyone familiar with these type start-ups.

Compensation

asked Apr 14 '11 at 13:07
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User9381
16 points

1 Answer


1

Well, if I was offering you the chance I would be saying something like:

If you contribute your time in a CxO style position, then I would give you around 10-15% @ 2% per milestone (I like lots of small over a few make or break ones).

For the $ investment I would also offer you another 10-15% (well that bit depends on the total of the first round). If your putting up all $3M then obviously it would be much higher.

I would want you to end up with enough that given subsequent dilution in later rounds your still engauged and driving the thing forward.

Does that help?

answered Apr 14 '11 at 17:20
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Robin Vessey
8,394 points
  • +1 for making sure your compensation will keep you engaged and driving the business forward. – Susan Jones 7 years ago

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Compensation