Business Development · Strategic Partnerships

Incentivizing 3rd Party Biz Dev

Allison Rosenberg, Ph.D.

December 12th, 2015

I am working with a very highly placed 3rd party to identify an institutional founding/funding co-partner.  This person's access is exceptional; I know him to be extremely effective and principled, and I want him around.  How do I properly incentivize him and reward him to find and help me close just the right deal?  Note: When I worked for a consulting firm, we offered a non-trivial, one-time %-of-contract revenue share to honchos who brought in clients. Once up and running, I'd like to incentivize any number of third parties who bring me a buyer.  In the immediate case, however, the intermediary in question is in position to bring me a founding, institutional partner.  Seems the incentive and reward should be higher. Agree? 

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John Seiffer Business Advisor to growing companies

December 12th, 2015

Why don't you ask him what he wants and see what you're reaction is?

Thomas Kaled Business Development Consultant @ thomas.kaled@gmail.com

December 13th, 2015

Dr. Rosenberg,

Is this person going to help you find an Investor? If so Lehman's Formula is applicable (exitpromise.com/lehman-scale ) with some sort of option to convert to equity. Look at your 1-5 year projection for the conversion formula. Typically if he provides an Intro only it is 3%, intro and co-presentation 3-2 and if he closes the deal the whole of Lehman.

To keep him 'on board' form an Advisory Board with Comp or Options however all Board Members should get the same formula.

If you are describing him bringing a Business Deal since I am not familiar with the margins in your Industry it is difficult to opine however it should be weighted heavily toward "Commission" in Year 1 and diminishing to an annuity by Year 3. Again if you wish to give an option for Conversion in Year 1 that's great however the Annuity should not be equity.

Varun Mehta CEO of Disqovery

December 12th, 2015

I think we could benefit from a little more information, Allison…
  1. Is this "third party" a person or a firm? What is this intermediary's normal job?
  2. How do you define the term "institutional founding/funding co-partner?"
  3. What do you expect such an institutional co-partner to provide, and what do you expect it to take in return?
Though so far I know very little, my gut impression is to steer clear of anyone who claims they can make helpful introductions for a fee of any kind. More information may cause me to override my instinct.

Bora Karamustafa Consultant, Advisor, Managing Director - Sales & Marketing

December 13th, 2015

Allison, I also agree with the earlier comments. Before I enter into such a discussion, I would ask the third party (I am assuming that s/he is a person) upfront what s/he thinks of your business and how s/he sees his/her involvement moving forward. I would not compare your situation directly with consultancy/client acquisition situations. Good Luck, Bora

Varun Mehta CEO of Disqovery

December 13th, 2015

The conventional wisdom I've heard about this is:
You have to decide if this person is an advisor, a cofounder, or an employee. He cannot be all of them, and you must compensate him accordingly in each case. There are no in-between roles.

If he cares about your company, and he believes in your success, then a lot of what you need him for is covered by treating and paying him as an advisor. If your plan is to build a scalable startup, this should be enough.

My opinion? You compensate like with like: if someone contributes to the future potential of your company, with intangibles like introductions and coaching, you pay with equity. Those contributions are long term, and the compensation is also long term. However, if someone contributes by bringing in revenue, you pay with cash. Someone you consider an advisor should not be offered cash, and if offered he should not accept it.

What should you do? You need to think hard. If this "free agent" fellow is so invaluable to the business, and you get along, and he is co-pitching and closing deals, you might think about making him co-founder. Otherwise keep him an advisor, or hire him as an employee.

Justin Roff-Marsh

December 12th, 2015

Allison

Why do you assume that an incentive is necessary -- and not harmful? Personally, I would be insulted if someone offered an incentive to make that kind of introduction. If I cared about your firm -- and the candidate -- I would naturally do it without financial incentive. 

It would feel unprofessional not to.

Justin

Allison Rosenberg, Ph.D.

December 13th, 2015

Thanks everyone. More detail clearly is in order.

The 3rd party is question has been working with me as an informal advisor since the inception of my business concept. He is supremely connected; right on top of the value proposition and the market -- he invested millions of dollars for his PREVIOUS employer in developing a COMPONENT of my model (i.e., data analytics for career development), and he has contributed immense value to my company'snadvancement already, in introductions and shining recommendations.

MEANWHILE, I have been advised by three friendly VCs to consider shifting my focus from B2C to B2B, to monetize optimally. The last VC suggested I find an institutional partner with "reach" to help fund and distribute my product. That would be done in several verticals (that same VC recommended narrower than broader). The party in question is in a position to open 4 or 5 such doors.

SO, I recruiting him to my advisory board, with a small equity incentive, now that he is a free agent. At the same time, I want to motivate and reward him for successful introductions, co-pitches, and -- eventually -- closing the right deal.

I will look carefully at the Lehman formula (thank you Thomas Kaled), and I appreciate your various suggestions and recommendations. Further guidance most welcome!

Best to all,

Allison