Giving Equity to Marketing / Sales / Referral Partner


1

I started a company in India in June of 2012 focusing on Web & Mobile App Outsourcing Space. In past 1 year we have grown to revenue of $1M+ and we are expanding fast. The company is bootstrapped and I am its sole share holder.

Last month, we entered into a referral agreement with one of our clients to whom we offered a recurring kick back from each referral. Its only been a few days and he has already referred us to some pretty large companies and I think we will start closing some of that business very soon.

This guy is quite influential and now he said he wants to talk about a more strategic partnership where he wants to have shares in our company and says that he can take us to the next level and get us very high volume business. I think he may be looking for our US representation or, an advisory role.

I am not sure how to structure this or, whether its a good idea at all. Looking forward for some directions and help.

Equity

asked Sep 13 '13 at 04:31
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Mukul Gupta
6 points

4 Answers


1

I certainly wouldn't offer him any equity after just a few good days of referrals - especially since it seems you haven't yet closed any of that business.

There are many different ways you could do this. I suggest you read this: http://thestartuptoolkit.com/blog/2013/02/equity-basics-vesting-cliffs-acceleration-and-exits/ and if you really believe he is worthy of equity consider working out a deal where you set aside a certain amount of stock for him, then set up an agreement based on triggers and/or vesting.

Just be careful. You don't want to give him equity on the assumption that he will stay with you and be great - only to have him walk away with his equity after the ink is dry.

Good luck.

answered Sep 14 '13 at 01:52
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Dave Feyereisen
963 points

0

This is easy to solve with a dynamic equity fund which will allocate equity to participants based on their actual contributions. In this case you would issue equity in lieu of commissions on revenue generated. The model will tell you how much he should get.

answered Sep 17 '13 at 01:18
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Mike Moyer
284 points

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Not a fan of equity. It's cheap, but so difficult to manage. Maybe provide a profit sharing monthly or quarterly. Could be based on revenues or net sales.

If you do use equity, what happens if the person goes away? Is it voting stock or common? Can you buy it back? Do they have the right to block you issuing / diluting your shares?

answered Sep 19 '13 at 06:56
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Efficient Leader
37 points

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I think its never a bad idea to get some money flowing into your business. You can use this money for further expansion and take your company to the next level. However it is important to clarify the terms of agreement with the prospective partner (in your case the influential guy). There are a lot of points you need to keep in mind before venturing into this like

  • Economics of revenue and profit
  • Percentage of shareholding
  • Your and his role therafter

You can consider making him a representative of your organization in other countries, where he can tap in the business and you can complete the projects at offshore.

All said, in the end it depends upon the rapport you share with that guy and if you really want to work with him in the future because this surely is going to be long term.

answered Sep 13 '13 at 18:49
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Manvik
101 points
  • Thanks a lot Manvik for taking the time to respond. Since he wont be investing any money, any idea about how much shareholding to offer him and against what revenue? – Mukul Gupta 4 years ago
  • Why would you want to give him a shareholding and for what reasons? Everything comes at a price, and you are the best person in this case to define that price. I think you need to first think the what value he is bringing to the table because you want to make him a co-owner of this enterprise at no cost. Of course of the guy has the necessary skills, it does not matter if he is bringing any money in but you need to think through carefully and have a signed agreement. Also I don't know if yours is a Pvt. Ltd. or a proprietorship firm, so you need to act accordingly – Manvik 4 years ago
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