% to pay a dedicated equity raising partner?

Question

So if my firm hired someone to raise equity for us, and of course they wanted compensation based mainly on how much equity they could raise us, what would you think is fair breakdown (yes this is legal, I've consulted with a lawyer).

They were proposing 5% of first $5m, 4% of next $5M, and 3% there-after.  And all the relationships that they bring in, they get those same percentages if more money is raised from those contacts, for 3 years after termination or voluntary departure.

What do you think??

Anders Jax · Answer

I was hired for consulting work, and then they realized I could probably raise the money with the contacts I have.

Yeah, I was thinking to ask for 15% of the GP, which would roughly equate to 4% of the LP's stake (seems like a fair % of capital raised), depending on what returns are achieved and the promote structure.

Ronald Rohde · Answer

I like this solution the best. Trying to worm your way in as a GP is not the most accurate role for him.

Ronald Rohde · Answer

So i'll tell you that your introduction, while valuable to you, will likely cut you out given the key players size and experience. Even if you sign a written agreement, they won't pay. Which means you have to sue, they will defend and claim a lot of unlicensed securities brokering, etc. Threats of criminal enforcement, etc.

Introduce them because you want to help, but you're not in a legally strong position to collect fees.

Ronald Rohde · Answer

lawyer rebates the difference at closing. 3% (minus) whatever was paid for hourly

The issue is that you need to be licensed. Selling or brokering securities is a regulated activity. If you are a full-time employee there is an exemption for that scenario. Go do what you want, but the advice in this thread is very consistent and clear on the likely outcome.

Brandon Hicks · Answer

@Anders Jax

I’m confused...

In your opening post you state that your firm is hiring someone to raise funds...implying that this is a different person other than yourself.

Every other comment makes it sounds as if it is you.

That said, I believe it is very common for fund raisers to get a slice of the GP based on the amount of money they raise on a per deal basis.

Anders Jax · Answer

@Anders Jax

If I get a piece of the GP for deals I raise assets on, is that not legal?

Anders Jax · Answer

Sounds like there's some smart buyers in Cali, but how would that reduce the cost of the broker? If it was sellers hiring lawyers, I'd get it, but the seller pays the realtor full fees regardless of whether a buyer's broker was used or not, I thought.

Well certainly I am doing it for my own economic benefit.  The GP needs capital, I can raise it for them, and I'd like to be compensated in accordance with the value I'm creating for them. I don't understand why I can't execute this... if I were a full-time employee there, and they staffed me with raising assets, and gave me a bonus based on the assets I raise, that would be legal, correct? I have made it clear I am not a broker, just a consultant helping to find investors.

Ronald Rohde · Answer

I'll disagree on your BH example. Many Buyers in California are hiring lawyers to represent them and paying hourly. If I charge my rack rate, I don't need to demand a percentage of the sales price.

Back to your problem, I have no doubt you're providing value--there is no way to get compensated the way you want without getting licensed. I'm happy to draft a contract, but don't waste your time bringing people together unless you know why you're doing it.

Anders Jax · Answer

@Ronald Rohde

Billing them hourly just isn’t something Im interested in. Neither is a realtor selling a house in Beverly Hills.

Im just not interested in billing $40k and delivering $100m in equity in exchange for it.

Im looking for a way to structure this responsibly, and be compensated fairly.

Goldman isn’t taking $500k to raise $1B in bonds for a company, because that company needs goldman to do it, and its worth it for them to pay 4% fees for it.

So I appreciate the thoughts, but anything where I’m not getting a piece of the cash flows, is something I have no interest in.

Cheers

Anders Jax · Answer

Well I think I'm covered if I am made a partner in the firm and only take a set % of the GP promote. Does that sound unreasonable?  I am bringing these guys tremendous value that they can't get for themselves...

% to pay a dedicated equity raising partner?

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