Startup Comp Structure & Fundraising
Fellow Monkeys,
I am currently in discussion with a startup to join them to focus on Fundraising and business development. As a fairly early stage project, they do not have cash to pay me - I am fine with that and are suggesting a cash bonus once the fundraise is successful. Does that seem fair? Should the bonus be a % of the fund raise?
I was thinking of throwing Equity options striking when the first investors will join too.
Any input/compensation structure ideas is appreciated,
Thanks,
Pan European Monkey.
Maybe APAE earthwalker7 @Isaiah_53_5" could help on this one?
If you're raising for companies, normally it's 6-7% of capital raised. If you're raising a fund, it's 2% of the fund raised.
Raising for a startup (company) in this case. Thanks for the help!
Compensation in these situations usually comes as cash paid to you based on a percentage of capital you've raised.
For a company, it can range from 3-7%. The factors that drive this include:
For a fund, it ranges from 1-3%. The factors here include:
(Note that with funds, the payment is almost always staggered over years. A 3% fee is probably paid out as 75 bps for four years or some similar format. In instances where the fee is lower, it can be due in a single lump sum [and GPs often have credit facilities set up against their recurring management fee income to handle SG&A expenses exactly like this].)
In your situation, I would probably ask for options (or if you're really bearish on the future success of the company, a blend of cash and options). It's a startup, which means you're probably raising them high six or low seven figures.
Getting 5% on a $1m raise is $50k. Hardly life-changing money. However, negotiating 200 bps of the cap table could yield to a seven-figure payday down the road.
Do some rough math. If you're raising them $1m on a $5m post-money, the money you got them is 20% of the business. Your ask for 200 bps in options is thus effective to a $100k placement fee ... which would be like a 10% fee on the $1m raised ... but you aren't actually taking cash out of their pocket, you're simply aligning incentives and asking to participate in the upside.
A convincing person could argue that 200 bps is actually cheap and go for more.
Good luck.
This was crazy helpful, bookmarked for future reference. Thanks as always.
APAE dropping serious knowledge as always.
yeah APAE gettin real over here - good points
Thanks for the post, very helpful. I am kinda bearish on the project but wouldn't mind trading off some cash for options to share the upside.
Very helpful, thanks!
Where are you geographically? Europe? United States?
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