Equity · Strategic Partnerships

Equity for a Traffic Acquisition Partner?

Narayan Mani Head of Business Development at Mokriya

November 30th, 2015

We are partnering with an organization that can bring traffic to our website?  They are interested in an equity sharing deal.  How much equity should I be considering?  And what is the correct metric? E.g. Should I say 1% if they can bring me 100,000 Daily Active Users (DAU)? 0.50% for 200,000 sign ups? Any guidance would be much appreciated.
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Pierre Bradshaw Revenue Focused Digital Marketing Professional

November 30th, 2015

Hello, 

Everything you do with a third party should be based on revenue.  All users are not equal.  It's too easy to get burned there if you don't tie it to quality of users and revenue.  100,000 active bots and Philippine nationals or 200,000 mechanical turk signups aren't useful to you.  Be very specific there.  Create your ideal avatar and build from there.

Make sure those "quality metrics" are air tight then negotiate.  

Also, are you paying for the traffic AND giving them equity, or are they doing all of the legwork?

Mike Moyer

November 30th, 2015

Giving away equity is not ideal, but sometimes that's all you have. I would much rather give away equity for productive marketing and sales than I would for just about anything else.

There is an exactly right way to do this. And there are lots of other ways that involve lots of guessing and opinions and predictions about the future.

To do this properly, determine a fair market rate for the lead fee or traffic generation. This should be easy. It is similar to what the company would charge other companies.

When they give you the leads they aren't getting paid. They may never get paid because your company is a startup and, therefore, high risk. This means they are, in effect, betting the fair market value of the leads on the future outcome of the company.

You, too, are betting the fair market value of your services on the future outcome of the company. In fact, everyone who contributes to your company is betting their contributions on the future success of the company.

The fair market value of these contributions is easily quantifiable and it accumulates over time. Therefore, any set amount of equity you give partners or even yourself is going to be wrong because you can't possibly predict all the various contributions your company is going to need. Most people try to do this, but they are always, always wrong.

You need a dynamic model for your equity split that allocates equity based on the relative risk taken by you and the other participants.

At any given time:
  • Your share = the fair market value of your contribution? the total fair market value of all the contributions made by everyone
  • Their share = the fair market value of their contribution? the total fair market value of all the contributions made by everyone
This dynamic equity model will guarantee that each person who contributes to your startup gets exactly the equity they deserve.

This is the only way to make the split fair. Every other method on the planet will cause future problem that will come back to haunt you.

I've written a book on exactly how this works, it's called Slicing Pie and you may have a copy if you contact me through SlicingPie.com

-Mike

PS: Think about how this might work on a smaller scale. If two people each bet a dollar on the same hand of Blackjack they are each risking the same amount. If they win, they should each get half the winnings.

But what if they get two aces instead and have to split them and double down? The first guy is broke so the other guy puts in two more dollars. Now if they will the first guy only deserves 25% because he bet $1 and the other guy bet $3.

It would have been silly to try to guess, in advance, how much of the winnings each person gets. Only when you look at the bets are things clear.

Only a jerk would argue that the guy who bet $1 deserves the same amount as the guy who bet $3.

It's the same in startups. Look at the bets, the actual fair market value of the bets. The bets will give you the answer.

David Pace CEO, Business Speakers Bureau & Event Services. Serving the U.S. and the world * www.BSBspeakers.com

December 1st, 2015

Narayan: my suggestion is to base the share based on increased sales as a result of increased traffic. Benchmark where you are now with both sales and web traffic then offer a % of the increased revenue, A larger % of documented increase in business is more equitable for both sides. Start with 1-2 % and offer more if the increased traffic brings in greater than expected results as a bonus. Keep the sharing time limited such as 6 months with option to continue or renegotiate. Just my thoughts

Kelliane Lam Founder at Time To Go Social and Kelliane Parker Farmers Insurance Agency

December 1st, 2015

1. Who is the audience they will bring? Yours or theirs?
2. What do you want this new audience to do? Visit, shop, click through?
3. What are you paying to get? The only audience that matters is one that truly         needs your product.
4. It doesn't matter what the cost, if you are paying for the wrong client.

Neil HereWeAre Want To find-close Business Online without competition Before They Google Search? We solve this problem 1(508)-481-8567

November 30th, 2015

You need to look at a lot more than you have given us to work with.

Traffic is not an objective, getting genuine "I need it now" prospects is an objective. The site needs to be organized so it can seamlessly attract that "hot prospect" show up in appropriate product/services searches and guide that hot prospect into buying and actually parting with cash for your product or service.


Thus, A great web designer, one who truly understands that entire marketing process, researching why folks would want what you sell, where they hang out online and can be found, what the various ideal target audiences care about then and how to make a web page do that as described in this post is what you really need. 

What exactly will the "partners" be doing as their specific role that the great web designer/marketing person could not do?

Unless you very clearly put "closed sales results and a $ amount required" into this agreement against which equity will be arrived at then don't do this deal ar all.

Anonymous

December 1st, 2015

I just spoke with a firm who guaranteed nothing lol. They wanted to go into partnership and sadly it doesn't work this way....

 being that more details are needed I would focus on what kind of $$$ they are guaranteeing. Put provisions in the contract for exit and don't spend money on adjusting shareholders... create a doc through your lawyer to enter into shareholders once they have completed their guarantees.  
Your CFO/accountant should answer your question on fair % based on several factors in your business.... ie. After reviewing one of our clients company's they chose to go based off of a doscounted rate on their expense to hire staff, etc. Their business model supports it and they love the growth. 

Stephen Steel Entrepreneurial Marketing/Financial, Results Oriented Professional

November 30th, 2015

I would only share equity based on sign ups and only if it generates income to you.

Stephen Steel Entrepreneurial Marketing/Financial, Results Oriented Professional

November 30th, 2015

send me your phone # steeles@att.com

Sam Hermans Information Security | Risk Management | Founder at Lumturio.com

December 14th, 2015

If I had to do it I would approach it the following way:

Take your cost of acquisition and multiply it by the required amount for your first ballpark figure.

Give the party a small % when you sign up with them so they immediately have one bird in hand.

Then work out a bonus related to actual revenue (visits mean nothing) and then use vesting to make sure they keep working their ass off while you do.

That said, I don't believe in silver bullets so if you could invest your time and shares in someone that will join you and help you grow your company organically thats the way I would go.

Liza Taylor Communication Specialist at Keyideas Infotech

December 7th, 2015

Give them an equity as long as they can bring you traffic. As of now you don't need just sign-ups, but traffic. With better traffic, you can create better content that are engaging and ultimately, you would get sign-ups. Don't lose your sight on traffic. 

Good Luck