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Should an equity owner get a venture capital funding commission?

We are on the verge of getting some angel funding for our company. One of our founders (who owns 9% of the company) was brought onto the team to help with funding and marketing. Now that we are on the verge of funding this founder feels that she should get a commission for finding the funding. The rest of the team does not feel this is fair as we have been focused on things like engineering, supply chain management, sales and other non-commissioned roles. We feel this makes the money more expense and ultimately hurts the team as a whole. Is it common to pay founding equity owners for finding funding? Thanks!

25 Replies

Aren Kaser
4
0
Aren Kaser Advisor
Founder and CEO at Igor Institute
It is not common to pay commission to equity holders for finding funding for a company they part own, its their job. Further, equity is something that is vested over time as you grow, meaning its probably worthless right now so you could give the shareholder a few bucks (literally). Furthermore, you could offer a commission for a reduction of equity as it is intrinsically an equity sell if no others are getting some of that. Finally, its a misuse of the angel funds you have just been given.
Mitchell Portnoy
4
0
Mitchell Portnoy Entrepreneur
Healthcare Information Executive
Ben:
Unless you have specifically discussed some type of finder's fee previously I would remind him that his 9% equity includes his "reward". Everyone has a role to play going forward. Should a programmer with founder equity demand payment for doing his/her job? "Ridiculous" and "pathetic" are two words I would also use along with "no".
Blake Caldwell
3
0
Blake Caldwell Entrepreneur
CEO, CTO of Sky MacKai LLC
If he was brought on board to help with funding, then he's already received payment through his equity. He JOB is to find funding. Of course this all comes down to the wording of the contract, but he should not expect a bonus unless it's explicit in the contract, or if he found funding more than an amount explicitly set out in the contract.

He's pulling a bait and switch...I'm sure you understand that he can easily tank this deal. The issue at hand is, do you want to go into business with someone who is pulling those moves. I'd suggest pointing out the facts and telling him that he has the opportunity to play his role on the team...and if he still persists with his request (demand), you will learn that he's not a team player so cut him and the deal he comes with.


Mike Moyer
0
0
Mike Moyer Entrepreneur • Advisor
Managing Director at Lake Shark Ventures, LLC
If the man had the relationship prior to joining the company then that relationship was part of the value he offered and a finders fee of less than 3% might be okay (but the investors may not like it). If the man formed the relationship while working for the company then it's probably not fair. It's the job of the employee to generate investors or sales or whatever else you pay them for. Commissions are more common because it's part of annual compensation for sales people. -Mike Moyer www.SlicingPie.com
Chris Seline
0
0
Chris Seline Entrepreneur
Search Engineer / Data Architect
Absolutely not. Tell them they can have equity or they can have a commission. Not both.
Mike Moyer
0
0
Mike Moyer Entrepreneur • Advisor
Managing Director at Lake Shark Ventures, LLC
I agree with Chris, I was thinking that the finder's fee would be paid in equity....
Drew Austin
0
0
Drew Austin Entrepreneur • Advisor
CEO & Co-Founder at Wade & Wendy
No. He should not receive commission on the funds that he raised. His compensation was in the form of the equity he was granted. It seems to me based on his equity stake that you have been more than reasonable as is.
Samir Patel
0
0
Samir Patel Entrepreneur
Managed $1B+ in Ad Spend | Pioneer in bringing Big Data & Data Science to Marketing | Cornell MBA
Tell them to take a hike. Seriously. Get together with all the other founders, take them in a room--stare at them in the eye and tell them that greed is getting better than them and ask them to **uck off if they insist on getting a commission.

Regards,
Samir Patel
www.meetsamir.com
Eoin Matthews
0
0
Eoin Matthews Entrepreneur
Cofounder at Point
"Now that we are on the verge of funding this founder feels that she should get a commission for finding the funding."

shouldn't change the answer but most of the answers made her a dude.
Rob Gropper
1
0
Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
this should raise a red flag with the rest of the team and it most certainly will raise a red flag with the investors. Tell the investors that 9% of their $$ will be going directly into the pocket of one of the 'founders' in addition to this founders's equity and see how what kind of a reaction you get...on second thought tell her that you want to call a meeting with the team and the investors and have her stand up in front of the meeting and explain why she should get a 9% commission in addition to her equity. DO NOT actually call the meeting as there is a good chance the investors may walk when they see this kind of 'team work'.
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