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18900.com
800buy.com
99Read, 99读书网
Bertelsmann, 贝塔斯曼
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DangDang, 当当网
Eachnet 易趣
eGuo, e 国
http://bookcity.dayoo.com/books/default.aspx 大洋网
Leyou （乐友）
Lijia Baby （丽嘉宝贝）
Lusen.com.cn
M18.com
No 5
Redbaby （红孩子）
Sina.com
Sohu store, 搜狐商城
Taobao 淘宝网
tigercool.com
welan.com, 蔚蓝书店
Yaolan （摇篮）
Saturday, October 25, 2008
board member compensation
Rich and Peter weighing in on fees paid to directors on boards:
Peter:
Steve see below personally I think the 4-5 year vest seems long depends on stage of co- I would also think .4 is on the low end.
from Rasmussen, Erik erikr@safeguard.com:
Q:What's typical comp for an independent bod member- equity/cash if any and vest on the equity- finally assuming is common stock.
A: 0.4% of co in common stock. Vests over 4 or 5 years. No cash.
Rich:
Q: A friend of mine at Amazon is considering joining the board of a startup and wanted some advice on how startups generally compensate board members for their service. This startup has been self-funded and it is not clear whether the founder is interested in raising VC money. It is also not clear whether the founder intends to grow the company with the goal of a liquidity event (M&A or IPO) down the road or to operate the> company as a closely-held business indefinitely.
In my experience, I've seen startups grant options to non-employee and non-investor board members. In such cases, what % of the company is common and under what vesting schedule? Are options typically granted for each year of service as a board member? How common are annual cash payments? Are there any other forms of compensation that come> to mind?
A: Stock is the only thing I have seen start-up Boardmembers receive (plus reimbursement of expenses).The vesting is usually 3-4 years (with acceleration upon a change of control). I haven't seen more than1/2% for a board member (and that was for a real star). I haven't seen cash payments in private company world (only public). That being said, if this isn't the traditional start-up and may remain closely held forever, I think cash payments may be appropriate(10-20K year seems about right for a private company).
Peter:
Steve see below personally I think the 4-5 year vest seems long depends on stage of co- I would also think .4 is on the low end.
from Rasmussen, Erik erikr@safeguard.com:
Q:What's typical comp for an independent bod member- equity/cash if any and vest on the equity- finally assuming is common stock.
A: 0.4% of co in common stock. Vests over 4 or 5 years. No cash.
Rich:
Q: A friend of mine at Amazon is considering joining the board of a startup and wanted some advice on how startups generally compensate board members for their service. This startup has been self-funded and it is not clear whether the founder is interested in raising VC money. It is also not clear whether the founder intends to grow the company with the goal of a liquidity event (M&A or IPO) down the road or to operate the> company as a closely-held business indefinitely.
In my experience, I've seen startups grant options to non-employee and non-investor board members. In such cases, what % of the company is common and under what vesting schedule? Are options typically granted for each year of service as a board member? How common are annual cash payments? Are there any other forms of compensation that come> to mind?
A: Stock is the only thing I have seen start-up Boardmembers receive (plus reimbursement of expenses).The vesting is usually 3-4 years (with acceleration upon a change of control). I haven't seen more than1/2% for a board member (and that was for a real star). I haven't seen cash payments in private company world (only public). That being said, if this isn't the traditional start-up and may remain closely held forever, I think cash payments may be appropriate(10-20K year seems about right for a private company).
Finders Fees for Private Equity Deals
This is the text of an email that someone on the CBS alum list sent out after receiving a bunch of userful responses to a question he sent:
Several people have asked me to share the replies I received on what typical finders fees were for private equity deals. The feedback was numerous and very helpful. The CBS network is a great resource, and many thanks go to those who responded.
Caveat – I have grouped the many email responses in what I hope will be a logical and useful way, but raising venture capital equity is not my day job. All quotes are direct quotes from emails; in some cases emails have been split into multiple sections if more than one topic was being addressed.
In what capacity are you acting?
Advisor
“If all you are doing is simply introducing one friend or acquaintance to another, and you aren't acting in a formal capacity to market the deal, I’d probably ask for stock or warrants equal to about 2-3% of the amount invested by the people you ‘find’ for them.”
“This really depends on the industry, type of equity that they'll likely get (east vs west coast), etc. No standard here, but if the startup gave you a few % (in shares, not cash) of the cash that you find for them, that's not bad.”
“A better approach might be to ask to become an advisor and to ask to receive some options as compensation. Depending on the stage of the company you might as for anywhere between 0.2% - 0.5% but it's not unheard of to ask for 0.75% if it's very early.”
“Sometimes advisors are given warrants and said advisors help connect the company with investors (among other things). Other times investment banks will take a percentage of the financing if they in fact are able to get the company funded, so I don't see why individuals couldn't do it as well. However, I think you have to be registered as a broker/dealer if you're going to go that route since you'd be in effect offering securities. I'd guess an advisor would get no more than 1% of the fully diluted equity (and I imagine it would be a fraction of that).”
“Finders fees for startups, as far as I know, however, are not very common. It is more a matter of what comes around goes around, and the people that you helped may introduce you to someone that can help you, and so on, and so on, and so on. So I would not be too disappointed if you do not get a fee.”
“You will be lucky to get any fee--surprising how little room there is for fees in deals when you aren’t licensed, and when you are dealing with household name financial enterprises that everyone ‘knows’”
***NOTE***
“There are also various licenses, etc. (NASD/SEC related) that are required to raise money.”
“Finding equity, which is a securities transaction, is an activity regulated by state and federal laws which require one to be a registered representative. This means one needs to become a member of a registered broker dealer and pass several examinations to become registered under the industry regulatory body known as FINRA. If one is not a registered rep. and one still tries to raise the funds, one is running a serious personal liability for serious civil and or penal penalties. Years ago, one could quietly serve as a "money finder" without being registered so long as the raise was small, less than a few million, infrequent, the funding came from qualified investors and the finder was paid as a financial consultant. This is no longer the case; things have been tightened up considerably.”
“Technically you need to be a broker dealer in order to be able to collect a finders fee. Companies frequently ignore this rule but it is illegal and can get the company into trouble. Importantly, these types of arrangements will likely turn off any credible VC.”
A HOW TO EXAMPLE
“Ask for $250,000 and you might get $50,000. A percentage won’t fly—that’s one nexus of determining if you are providing the kind of services for which you need to be licensed. You must be treated as a consultant or advisor, and must be paid a success based consulting fee or a success based advisory fee, in a fixed dollar amount.
“Make sure you have a blue ink on white paper contract (not an email) and a lawyer (they can pay for the lawyer). Also make sure that your contract specifically says that (1) the company (or whomever is paying you) knows that you aren’t a licensed broker dealer, AND (2) that the fee will be paid at closing from first closing proceeds AND (3) that the agreement constitutes a lien over proceeds. Plus you need a standard indemnity and so forth.
“Finders fees work better, and get paid more often, when you turn up a deal/ acquisition/ investment idea rather than a financing source. But get your contract and give it a whirl.”
Banker or licensed broker/dealer
“… A typical banker fee on an equity raise is 6% of the amount raised plus 2% warrant coverage. Depending on what exactly your role is in the transaction below you can scale the fee accordingly.”
“If you were a banker placing the deal, then 5-7% plus warrants or stock would be standard compensation.”
Size of the transaction
Small
“In the deals I've done (with small public companies) it was 6% of the raise cash with 6% warrant coverage as a start.”
Large
“For larger private equity transactions (US$100-500 million) the fees range from a low of 1% to a high of about 2% and the fee is typically cash at closing.”
Stage of the business
Startup/Angel
“For startup stage, I have no personal experience, but I've heard that up to 10% is acceptable, and can be structured in combinations of cash and equity depending on many factors.”
“I was recently trying to source money, and agreed to 5% of funding sourced plus 5% of the shares of equity/membership purchased by the funding. This was for an angel round, so could be a little rich.”
“Broker dealers that work the small equity market covering start ups typically charge a success based fee paid at the first closing of 8% of the raise to be paid in cash and nominal price warrants for 8% of the stock. In this very tough market, if a broker will take the job, 9 plus 9 is a bargain.”
VC rounds
“Personally, I would never pay a finders fee for venture capital. On the other hand, I have invited people to be advisors and board members if I thought their long term association with the company would be beneficial and, in particular, beneficial for raising money through their connections. Those people have received stock options and/or warrants from about 0.25% to 1.0%.
“I think warrants and options are a far better way to go with this kind of thing. No VC wants to see a percentage of the money they invest in a company siphoned off to pay prior debt obligations.”
Alignment of interests
“As far as I am aware, funders will accept a small amount of equity, but are typically reticent to pay a finder's fee in cash, because at that point in a company's development, the company needs cash and it would be counterproductive to divert any to an advisor. There is also a put your money where you mouth is attitude that you should be happy to accept some equity in lieu of cash if the company is as good as you would represent it to be.
In terms of benefit to YOU, if the funders require a different class of share from common (i.e. convertible preferred shares), the best deal you could get would be to be given equity in the preferred share class and not common. This serves two purposes. 1) It perfectly aligns interests between you and the funders, because you both enter at the same share price and with the same rights and preferences and 2) the economics are better for you. Having more preferred shares issued instead of common, of course, is to the detriment of the company and its founders.”
The Lehman Formula
http://www.businessdictionary.com/definition/Lehman-formula.html
Amount raised Fee (%) Fee ($)
≤ $1M 5% $50,000
>1M to ≤ $2M 4% $40,000
>2M to ≤ $3M 3% $30,000
>3M to ≤ $4M 2% $20,000
>4M 1% $10,000
“Use the Lehman's scale for cash compensation. For purely stock, double the Lehman's formula. For a combo, use 1.5x.”
“I have done a few of those at both ends, once as a startup and twice as a finder. I can tell you one thing, the days of the standard Lehman formula are over. Today, the minimum is 10% where 5-7 is cash and the rest is in shares that are granted to you under the same conditions as the investor (preferred shares), the basic rule is that you should be able to make this as flexible as you can. If you truly believe in the idea then you might want more shares. If on the other hand you have your doubts... cash is king.”
International
Fee examples
Several people have asked me to share the replies I received on what typical finders fees were for private equity deals. The feedback was numerous and very helpful. The CBS network is a great resource, and many thanks go to those who responded.
Caveat – I have grouped the many email responses in what I hope will be a logical and useful way, but raising venture capital equity is not my day job. All quotes are direct quotes from emails; in some cases emails have been split into multiple sections if more than one topic was being addressed.
In what capacity are you acting?
Advisor
“If all you are doing is simply introducing one friend or acquaintance to another, and you aren't acting in a formal capacity to market the deal, I’d probably ask for stock or warrants equal to about 2-3% of the amount invested by the people you ‘find’ for them.”
“This really depends on the industry, type of equity that they'll likely get (east vs west coast), etc. No standard here, but if the startup gave you a few % (in shares, not cash) of the cash that you find for them, that's not bad.”
“A better approach might be to ask to become an advisor and to ask to receive some options as compensation. Depending on the stage of the company you might as for anywhere between 0.2% - 0.5% but it's not unheard of to ask for 0.75% if it's very early.”
“Sometimes advisors are given warrants and said advisors help connect the company with investors (among other things). Other times investment banks will take a percentage of the financing if they in fact are able to get the company funded, so I don't see why individuals couldn't do it as well. However, I think you have to be registered as a broker/dealer if you're going to go that route since you'd be in effect offering securities. I'd guess an advisor would get no more than 1% of the fully diluted equity (and I imagine it would be a fraction of that).”
“Finders fees for startups, as far as I know, however, are not very common. It is more a matter of what comes around goes around, and the people that you helped may introduce you to someone that can help you, and so on, and so on, and so on. So I would not be too disappointed if you do not get a fee.”
“You will be lucky to get any fee--surprising how little room there is for fees in deals when you aren’t licensed, and when you are dealing with household name financial enterprises that everyone ‘knows’”
***NOTE***
“There are also various licenses, etc. (NASD/SEC related) that are required to raise money.”
“Finding equity, which is a securities transaction, is an activity regulated by state and federal laws which require one to be a registered representative. This means one needs to become a member of a registered broker dealer and pass several examinations to become registered under the industry regulatory body known as FINRA. If one is not a registered rep. and one still tries to raise the funds, one is running a serious personal liability for serious civil and or penal penalties. Years ago, one could quietly serve as a "money finder" without being registered so long as the raise was small, less than a few million, infrequent, the funding came from qualified investors and the finder was paid as a financial consultant. This is no longer the case; things have been tightened up considerably.”
“Technically you need to be a broker dealer in order to be able to collect a finders fee. Companies frequently ignore this rule but it is illegal and can get the company into trouble. Importantly, these types of arrangements will likely turn off any credible VC.”
A HOW TO EXAMPLE
“Ask for $250,000 and you might get $50,000. A percentage won’t fly—that’s one nexus of determining if you are providing the kind of services for which you need to be licensed. You must be treated as a consultant or advisor, and must be paid a success based consulting fee or a success based advisory fee, in a fixed dollar amount.
“Make sure you have a blue ink on white paper contract (not an email) and a lawyer (they can pay for the lawyer). Also make sure that your contract specifically says that (1) the company (or whomever is paying you) knows that you aren’t a licensed broker dealer, AND (2) that the fee will be paid at closing from first closing proceeds AND (3) that the agreement constitutes a lien over proceeds. Plus you need a standard indemnity and so forth.
“Finders fees work better, and get paid more often, when you turn up a deal/ acquisition/ investment idea rather than a financing source. But get your contract and give it a whirl.”
Banker or licensed broker/dealer
“… A typical banker fee on an equity raise is 6% of the amount raised plus 2% warrant coverage. Depending on what exactly your role is in the transaction below you can scale the fee accordingly.”
“If you were a banker placing the deal, then 5-7% plus warrants or stock would be standard compensation.”
Size of the transaction
Small
“In the deals I've done (with small public companies) it was 6% of the raise cash with 6% warrant coverage as a start.”
Large
“For larger private equity transactions (US$100-500 million) the fees range from a low of 1% to a high of about 2% and the fee is typically cash at closing.”
Stage of the business
Startup/Angel
“For startup stage, I have no personal experience, but I've heard that up to 10% is acceptable, and can be structured in combinations of cash and equity depending on many factors.”
“I was recently trying to source money, and agreed to 5% of funding sourced plus 5% of the shares of equity/membership purchased by the funding. This was for an angel round, so could be a little rich.”
“Broker dealers that work the small equity market covering start ups typically charge a success based fee paid at the first closing of 8% of the raise to be paid in cash and nominal price warrants for 8% of the stock. In this very tough market, if a broker will take the job, 9 plus 9 is a bargain.”
VC rounds
“Personally, I would never pay a finders fee for venture capital. On the other hand, I have invited people to be advisors and board members if I thought their long term association with the company would be beneficial and, in particular, beneficial for raising money through their connections. Those people have received stock options and/or warrants from about 0.25% to 1.0%.
“I think warrants and options are a far better way to go with this kind of thing. No VC wants to see a percentage of the money they invest in a company siphoned off to pay prior debt obligations.”
Alignment of interests
“As far as I am aware, funders will accept a small amount of equity, but are typically reticent to pay a finder's fee in cash, because at that point in a company's development, the company needs cash and it would be counterproductive to divert any to an advisor. There is also a put your money where you mouth is attitude that you should be happy to accept some equity in lieu of cash if the company is as good as you would represent it to be.
In terms of benefit to YOU, if the funders require a different class of share from common (i.e. convertible preferred shares), the best deal you could get would be to be given equity in the preferred share class and not common. This serves two purposes. 1) It perfectly aligns interests between you and the funders, because you both enter at the same share price and with the same rights and preferences and 2) the economics are better for you. Having more preferred shares issued instead of common, of course, is to the detriment of the company and its founders.”
The Lehman Formula
http://www.businessdictionary.com/definition/Lehman-formula.html
Amount raised Fee (%) Fee ($)
≤ $1M 5% $50,000
>1M to ≤ $2M 4% $40,000
>2M to ≤ $3M 3% $30,000
>3M to ≤ $4M 2% $20,000
>4M 1% $10,000
“Use the Lehman's scale for cash compensation. For purely stock, double the Lehman's formula. For a combo, use 1.5x.”
“I have done a few of those at both ends, once as a startup and twice as a finder. I can tell you one thing, the days of the standard Lehman formula are over. Today, the minimum is 10% where 5-7 is cash and the rest is in shares that are granted to you under the same conditions as the investor (preferred shares), the basic rule is that you should be able to make this as flexible as you can. If you truly believe in the idea then you might want more shares. If on the other hand you have your doubts... cash is king.”
International
- “In Europe, it is 1-2% of the amount invested, paid either in cash or in equity.”
- “We are actively raising money for a couple projects now and have retained several fundraising firms in the UK on a non-exclusive, success-only basis. For any funds closed (that they sourced) they get 5% plus 3% warrants in the company/project plus some fees reimbursed (like if we ask them to travel with us to pitch to an investor they sourced).”
Fee examples
- “Usually 1-2% of money raised”
- “0.5 to 1.0% for an introduction. Could be as high as 5 to 7% if you are more involved in closing the deal.”
- “50bps to 300bps depending on level of service, track record, size of account, etc.”
- “Anywhere from 2% to 7% of the fundraise paid in cash or equity is reasonable. Higher percentage given to fundraisers who run a full process, participate in pitch, negotiate docs, etc.”
- “3-4%. Possibly 2% after the 2M mark”
- “5-6% cash fee on equity raised and 3-4% warrant coverage”
- “3-6%, sometimes up to 10% for small raises along with potential retainers per month......”
- “0.5% to 2% of principal, depending on value added/ role taken... you can also ask for some carry if you're bringing in an early or major investor.”
- “Standard fees are 10% of the money raised. However, fess can go to 15% and may include a 5% equity kicker, depending on the circumstances.”
- “It's generally 1% - 2.5% of funds raised; the percentage will usually vary depending on the amount of work done (i.e. helping to negotiate more attractive investment terms, etc.) by the organization that found the deal.”
- “we pay 2% for finding capital for our fund, which is subsequently used to fund private equity deals”
- “0.5 to 1.0% for an introduction. Could be as high as 5 to 7% if you are more involved in closing the deal”
- “1% to 2% of the amount that you help raise is standard.”
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