Fundraising

How to structure guaranteed payment in a channel partnership?

Anonymous

Last updated on February 19th, 2017

My pre-revenue startup has entered a channel partnership with a Fortune 500 company that's agreed to sell my data to their clients. To appease investors, I plan to ask the company to guarantee some level of payment. Should the guaranteed amount be based on the amount we raise from investors or the revenues we project? Is there an ideal/realistic percentage of either of those variables to aim for?

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

February 19th, 2017

What makes you think a Fortune 500 company will guarantee any particular level of payment? If they did, it is a level that they would feel comfortable with, regardless of what you ask for. If you want something guaranteed., ask for a minimal amount of marketing money or effort to sell your data. Tell your investors that you have made a deal with a Fortune 500 company. They should not need further appeasement.

Chicke Fitzgerald

February 19th, 2017

I agree with Irwin. It is much better to get them to guarantee activity, which should yield revenues. Minimums are tough for an early stage company to command.


What I've done is to only begin revenue sharing at a pre-determined level that covers my cost. So the first 10 transactions a month for me, I keep 100% and then revenue share after that.

Maxine Pierson INTERIM CEO, EXECUTIVE DIRECTOR/ VP Investor

February 20th, 2017

startup has entered a channel partnership with a Fortune 500 company that's agreed to sell my data to their clients. Are u serous?//


They are SELLING for MONEY ??? and you worry about asking for money --Yes- ask already.

Grant Olsen Founder RiffBiz.com

February 20th, 2017

Congrats on the partnership! As others have mentioned, it can be difficult to get minimums. However, it's definitely possible. Usually there is a trade-off though...for example, giving exclusivity for a time period and/or field of use or geography. The rationale is that you can't afford to give them exclusivity if you have no guarantees of them performing. So, for them to retain the exclusivity they have to hit targets and/or pay the minimums. In this case, the guarantee should be based on the value of the exclusivity (e.g., how much potential there is for the market they have exclusivity on). They'll never agree to the full amount of the potential as a minimum, but you should use that as an anchor point and know what you would be willing to walk away from. The guarantee really has nothing to do with the amount of funding raised, so I would stay away from that rationale, and instead, should be based more on the revenue potential. (here's a quick tool I built if you want to assess the revenue potential: riffbiz.com)

Bob Fields

February 21st, 2017

I have no issue with and would encourage you to ask for a minimum, but only at the right time(s).


If you have already "entered a channel partnership..."


Do you have a written partnership agreement already? If so, your relationship could be at stake if you go back and ask for something more at this late date.


Do you have a verbal agreement? If so, you may jeopardize the written agreement if they think the deal is done and only the formality of the written agreement is left to do.


An accurate picture of the deal is really what is needed for anyone to give you specific advice on this situation as there are many possible approaches.