What percentage to give advisors / VC matchmakers?
I've been approached by two startup heavyweights who offered to recommend me to VCs and angels for my startup (I'm the sole owner). They've asked me what percentage of equity I would offer them in return for this service and for them being on the board.
I have not raised any capital so far and have been running the startup for about 4 months with reasonably good traffic numbers. I am still in my full time job and I have no previous start-up experience.
Is there some industry norm for this percentage ? What conditions should I ask for ?
Thanks in advance!
Board Advisors Funding Angel Seed Funding
2 Answers
In the words of Michael Corleone
"Senator? You can have my answer now, if you like. My final offer is this: nothing. Not even the fee for the gaming license, which I would appreciate if you would put up personally. "
Give them nothing. They want equity just to make an introduction? That is ridiculous.
What do you mean by "heavyweights"?
If they actually do provide value and are useful to be on a board of advisors then you can offer equity - but for just introducing you - that is nonsense.
-
Well they are getting me time with VCs and angels that I probably would not be getting on my own, and their recommendation does carry weight. I think that is worth something :) – Sherif Buzz 14 years ago
-
Sure - but they are not really doing anything of value. If you want to pay them a fixed-price maybe I would say yes - but not a portion of the company. – Tim J 14 years ago
-
When you talk to the VCs/Angles ask THEM how much you think that is worth and if you should be paying or giving equity. I bet they don't think it is a good idea. – Tim J 14 years ago
Do you want them on your Board? Will they add value above and beyond an introduction to investors that brings investment capital in?
If the answer to both questions is 'yes' then equity could be exactly the right tool. And the question's a prompt to you thinking about the bigger question of what your startup will look like when it's a team. What equity do you want to reserve for executives, and what for Board members? If it were me, I'd want them to make a concrete ask so I could know where they were coming from - and get an idea of how much I could ask of them in exchange for sharing in the value I was creating.
If you'd like them on your Board but there's no real value beyond the introduction, it's less obvious whether equity makes sense. It can be worth having 'names' closely tied in to your company, but it's messy spreading equity too wide.
If you don't want them on your Board, I don't see how equity can make sense for you. If they're going to actively help you raise money, it's more usual to think about a percentage of funds raised. If there's nothing more than an introduction... well, the right VC or angel will want to find you, maybe it's time you looked at your local angel networks directly.
-
Hi Jeremy thanks for your detailed reply. Yes I do want them on the board, they are people who can add value beyond introductions, I don't expect much from them on the operational side but they will open a lot of doors and they have decades of Valley experience that I honestly don't have. I am meeting them tomorrow and will offer 5% equity on the condition that the introductions they make bring in the funding that I'm asking for within a particular time frame, and they set me up to present to at least 5 VCs. I'm in Egypt, and they are Valley based, there isn't much of an angel network here:( – Sherif Buzz 14 years ago
