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Fundraising as a Position - Requirements and Compensation

I am discussing employment opportunities with a local healthcare company. The company has tasked me with the project of fundraising my salary. The team is currently about six people.

The two pieces I'm not certain about, but need to bring to the table are: 1) compensation and 2) position.

1)Compensation. The initial compensation package I'm being offered is very light. A flat amount of equity and a low salary. I feel that investors from my network want to see that I'm personally buying into the organization. This could look like equity commission, or something different. Are there frameworks for this that exist?

2)Positioning. When I meet with investors, I won't be making the final decision to accept the investment. But, I do need to come across as senior enough to be fundraising, with enough access to information to have an informed conversation. I need to overcome the following questions:
  1. Why aren't the founders leading the fundraising?
  2. Why am I qualified to be having this conversation?
  3. ... perhaps other questions that I've not thought of.
I want to make sure I'm setting myself up for success by properly aligning myself to the role, and taking enough off the table (equity + cash).

As for my background, I have a degree in Computer Engineering... but I've spent the last five years out of college hacking the entrepreneurship / career system and building my network. That is why I'm a favorable candidate for them.

9 Replies

Justin Smith
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Justin Smith Entrepreneur
Vice President of Customer Support Services, Customer For Life

I've seen it take many forms from commission, finder or retainer fee, promise of position, straight salary, a combo of salary and equity, and more. Regardless of structure, IMHO you will need to be invested in the company and success to show stake in the game. If you are not engaged and invested in seeing the traction moving forward, they will ferret that out and your creditability will suffer as well as the company. Raising a round is not an easy task. It was in my experience, frankly was as hard as bringing a product to market.

Investors know that engagement takes many forms. You will need to be conversant with the entire metrics of the company, the vertical and the team. If you don't know, it's your fault and you will be noise in the discussion - not helpful. If the company is fortunate enough to have an experienced advisor that can assist in fundraising, has the correct connections and has investment in seeing their movement forward such as yourself it would be valuable. Many people find that fund raising takes as much time or more than a fulltime person. It's not a part-time position or easy.

As for "When I meet with investors, I won't be making the final decision to accept the investment," it is rarely a one shot conversation. It is a relationship that you are building with the person. It's going to take a number of conversations to build the relationship. They will be doing due diligence and vice versa. They will get to know you, your team, their strengths and what your plans may be. They invest in Team, Market and Product. If you have raised a round in the past, that adds to your creditability. If you have successful exits making investors' money it is very helpful. If you haven't then surround yourself with experienced, smarter people who can execute to compensate for your greenness. Experience speaks volumes.

Lastly, IMHO, greed screws up a lot of people. A small part of a larger pie is much better than a hog share of no pie. Enable the investment to be sound. Plan for a follow on round. If you think that you will scale with no further investment, you likely are wrong. Enable your cofounders and investors to have the appropriate amounts with the follow on planned. Research the appropriate levels in the cap table. Most new startupers don't have a clue what is real and what to expect. Know your role, the business and align with the needs of the company. I would expect they make the equity contingent on execution and bringing rain with a vesting schedule. They have to protect the company and investors will expect to see sound processes as well - they are investing in a business to see a return not a screwed up relationship.

Devin Fee
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Devin Fee Entrepreneur
Director of Operations at Chiron Health
@Justin: very good response.If I could re-write my question, I would frame it in the terms you suggested (engagement / investment).

The business is something I know very well, which is why they've offered the position to me (regulations, clients, etc.). I'm not concerned about knowing the metrics, or having access to information. So I'm very interested in the "credibility" piece more so than the "engagement" piece.

I agree that greed screws a lot up. I also know that if I don't go in asking for more than their limited offer, I'm leaving a lot on the table. Based on their offer, I believe they're expecting a negotiation; I believe they laid out the floor and expect me to come back with a ceiling.

After reading your response, it seems like I should push for a base (salary + equity) + performance (equity). Without seeing enough data, I'm struggling understanding what should be asked for, or how the performance should impact the reward.

i.e. if I finish off their current round and raise $350k / $1M (hypothetical) should I be shooting for equity up to 5%. If i bring in just $50k should I shoot for 1%?

Or, based on your suggestion that raising is as hard as bringing a product to market, should i assume that my raising capital is 50% of the work, and if I raise 35% of the money, I should end up with 17.5% equity. I don't think I'll be able to capture the last number, and I don't want to be greedy, but I do want to capture the value that I bring to the table.

Thanks!
Justin Smith
1
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Justin Smith Entrepreneur
Vice President of Customer Support Services, Customer For Life

I have no idea about the business but you speak of risk issues when you state "I'm not concerned about knowing the metrics, or having access to information." I disagree with your statement. If they are not scaling or they have huge holes in the cap table (someone took a huge share, vested and left) or they have pending lawsuit for IP infringement, it may be a lost cause to even spend time with the issue or they may be unfundable as a result. You do need to know the inside out. This is a full contact activity that you need more information always.

As to your compensation expectations... I would suggest you review the section on shares and levels in the Founders Dilemma. This book that came out last year. There is a survey with results from 12,000 startups as to the comp and equity ranges within startups by position, level and role. I.e., Series A, Non-founder CEO, Series B VP of Marketing, Founder Level CTO vs Non-founder CTO, etc. It may be illuminating and well worth your time. It shows the averages and what you may expected, etc. While not the end all, be all reference, it give good guidance and sets the frame appropriately. Most people outside of the situation are surprised at the real levels we are discussing. It will also give you a good grounding to know what they are really dealing with. Frankly, ask for a cap table to review and you will know where things are positioned.


http://www.amazon.com/The-Founders-Dilemmas-Anticipating-Entrepreneurship/dp/[removed to protect privacy]

Geoff Lamdin
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Geoff Lamdin Advisor
Left Field Solutions, LLC
Devin, From your description it is a bit confusing as to what the organization or company is about which you are enquiring. Is it the Notre Dame Club of Austin or a healthcare company? If it is the Note Dame Club of Austin a not-for-profit? If so, is it a 501(c)3? If the healthcare company, what structure is it currently- LLC, Sub-Chapter S, C-Corp? My reply to the follow-on questions you raise are entirely dependent on your clarification to these questions. E.g., you cannot have equity in a not-for-profit corporation such as a 501(c)3. The type and position of the equity in a corporation varies subject to its legal structure at the time of the raise.
Devin Fee
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Devin Fee Entrepreneur
Director of Operations at Chiron Health
Hi Geoff,

I'm referring to a healthcare company as I state in the first sentence of my question.

The 501(c)(3) that I am the president of, is an unpaid position for an organization focused on community service.
Geoff Lamdin
0
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Geoff Lamdin Advisor
Left Field Solutions, LLC
Thank you Devin - I picked up on that after re-readng a few times. Geoff
Thomas Duffy
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Thomas Duffy Advisor
Telehealth365
i like the fact that the founders do not want to be part of the fund raising!

you seem motivated but what is your reasoning to be a part of this team is it the products or the team that move you to be involved i would be happy if they gave you a salary and equity if it is spectacular if not fund raising is very tough I would ask to be director of finance
Devin Fee
0
0
Devin Fee Entrepreneur
Director of Operations at Chiron Health
Hi Thomas -

I've very comfortable with the product, industry, and regulations that are in play. It is in the same domain as a business I was a member of in the past, but not directly competitive.

I also believe the founders have their heads screwed on straight. I don't believe they're fantastic at fundraising. But, ultimately I see it as an experience that will fill out my technical experience and product sales / implementation experience.

Of course, my trajectory has been more nuanced than straight career or straight entrepreneur. I'm kind of wave hopping.
Thomas Duffy
0
0
Thomas Duffy Advisor
Telehealth365
good luck if you have a lean canvass to review send it over
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