I sourced a deal - how do I get paid
Hi Guys
I just sourced a deal for my fund (VC/Growth Equity). We're talking low 8 figures EV.
Is there some kind of standard finder's fee in the market (people working in VCs/Summit/TA please advise)? What should I negotiate with my partners?
You are partner and you don't know how to get paid on deals you find?
If you dont have a contract dont think youre necessarily going to get paid. I have interned at pe firms where interns sourced deals as regular parts of their responsibilities and didnt get paid. Presumably you mean the deal has already gone through and the financing is currently taking place and you didnt just get a cim or youre going through DD/legal work. Also, are you an associate at this firm, or an intern?
I'm an associate at the firm, and I sourced the deal through own connections.
My job is not to source deals but it is the more standard PE associate job i.e. execution, modelling, etc. Deals are usually sourced from banks/partners connections.
i don't think the partners are legally obligated to give you any bonus
they're not legally obliged - but I'm sure they would agree that they need to pay for outstanding performance
Is there a reason you didn't try to clarify with your firm earlier?
I interned at a VC and ended up bringing in an investor for one of the portfolio companies that needed a bridge loan. I received a 5% 'finders fee'.
Take a look at this:
http://www.msilimited.com/Downloads/Fees%20and%20Services.pdf
Someone in another forum said "There is a standard followed by most finders called "Lehman Formula". But you can literally ask whatever you think is right -between you and the startup guys"
Thanks captainkoolaid
I heard Summit Partners pay associates $200k per deal sourced
Any other reference points / advice appreciated!
I sourced a 650k vc investment for a small ($100m) family office. Was outside of my job description so we had never really discussed what sort of fee there would be until after the transaction closed. I ended up getting 1% phantom carry, which paid out 18 months later. IMO 1% was a little below fair, but given that with my network and strength of relationship with the target company, I couldn't really shop the investment, there really isnt much you can do. Its like banking bonuses - hold your hands out and see what you get.
Not sure about Summit paying $200k. Usual practice is to give the associate who sourced the deal a high annual bonus (end of the year would be 100-150% of base instead of 70-80%) and then actually give all associates in the firm a sourcing bonus of $5000-10,000 depending on deal size so all of them are aligned. Since you are a smaller shop, you should push for both (but nothing close to $200k) and ask for an opportunity to coinvest in the deal
don't be surprised if they don't offer you anything. Think of a strategy in case they do that.
Just as an FYI, if you source a low 8 figure EV deal in the future... you might as well just quit and do the deal on your own as a fundless sponsor. If the deal is good (which I'm assuming it is), your profit opportunity on just one successful deal will trump many years of potential earnings as a cog in the PE wheel.
I can say without question that Summit doesn't pay $200K per sourced deal. I don't know Summit's exact compensation with non-carry folks, but I think it's probably some dollar amount per $1M in funding, similar to other models. JMI's used to be $1K per $1M sourced up to $40K. So if you sourced a $40M deal, you get a $40K sourcing bonus. This is, of course, in addition to a base (at Summit, $100K-$110K for first year associate) plus some guaranteed bonus, say 50%-100% of base.
Keep in mind this is on the upper-end of growth equity firms. TCV, JMI, Summit, TA - that's compensation there. For earlier stage firms writing smaller checks - North Bridge, General Catalyst, Battery - there's probably a slightly lower base, lower guaranteed bonus, and a fixed sourcing bonus with some form of phantom carry in sourced deals.
Without a contract, you shouldn't expect anything. I would advise having a candid discussion with your boss about a finder's fee, but don't go in there acting like you're entitled to anything because that'll earn you the quick "GTFO."
And just realized this top is a year-plus old. My bad.
When you sit with your manager it will help a lot if you are prepared to justify the amounts you are asking for. I've heard a pure finders fee of c. 20bps to 30bps i.e. you literally just introduce two parties who then deal with each other + you do some basic work going forward. If there is no contract as such they can always take you for granted so need to be tactful.
I'd quite like to know what happened!
Hijack the deal and open your own shop Marty Kaan style.
To hijack the deal and open your own shop isn't that easy. If the manager is someone influential, it might be worth bending a bit. If you are looking to get paid, try and convince as I said above but be a bit flexible as well.
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