

Ask HN: How much commission would you offer? - iontheprize

This is my first post, but I've been an avid reader and learning from this site for  a while.  I'm posting now because I've had an interesting situation come up.  Due to the situation being a little sensitive, I can't be too specific.  My business partner and I have been working on an interesting mobile app and website that we launched this past weekend with one customer.  We knew before going live that our particular market was going to be all over what we're doing.  We got "lucky" and that is in fact what happened.  Therefore, now we're trying to deal with next steps and react as quickly as possible.<p>We've already been approached by an industry insider who says we shouldn't worry about selling to customers, but should be more focused on selling what we've built to a large entity that would like to own our product.  He's certain that he can help us make that happen quicker than I would've ever imagined.  It seems like a stretch, but I actually think he's right because of the response we've had.  I need to come to some sort of financial agreement with this industry insider on what share he would receive if he helps us sell the company/product to one of these big players.  I've never done this before and was thinking something along the lines of 10-15%.  It's our idea and we've done all the work.  He's just introducing us to people that can evidently throw a fair share of money at us.  I'm interested to hear what people think the appropriate rate would be for his service or am I going at this in the wrong way?
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damoncali
0%. Go build some value. You'll make the connections you need as you go if
you're successful - and it sounds like you're off to a good start.

Even if you chose to sell, 10-15% is too high. Investment bankers charge less.
Someone might happily sit on your board of advisors for less than 1% and
provide the same service.

~~~
sagacity
> Go build some value. You'll make the connections you need as you go

Yes! (but move _fast_ , always keeping future competition in mind.)

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staunch
Investment Bankers get a couple percent and a bit of cash. 10-15% is way too
high. Maybe 5% if you you think he could make it happen and you couldn't.

This guy is probably full of it though. The expression goes "Companies are not
sold, they are bought." If you haven't even been contacted by potential
acquirers it's unlikely any would want to buy you. Make sure you don't owe
this guy anything unless there's a successful acquisition AND he introduced
you to the buyer. Put a term limit on this agreement, like 6 months.

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CyberFonic
The more customers you have the more you will be able to sell for. To me it
would appear that someone else has sized up the potential of what you have
created and wants it early before the valuation goes up.

Might be better to deal only with people who have a verifiable track record in
making investments of their own money and engineering profitable exits for all
concerned.

I'm with baremetal on this one, smells like a fish market to me.

~~~
iontheprize
Yeah, I definitely understand that point of view as it makes a lot of sense.

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dmarinoc
More important than the commission will be negotiating all the other clausules
(involvement, support, time period, exclusivity...)

In other sector (Cloud IaaS) I've been offered all kind of offers raging from
5% to 50%.

It will always depend of what this insider will do for you. If she is really
good, only makes introductions and "helps" during negotiations, I won't pay
more than 10% (per my experience in my sector, yours would be different).

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sagacity
What about the IPRs? Is it patentable?

I'd strongly recommend investigating this asap. You can conduct preliminary
research on this at USPTO site (I'm assuming you're in the US):

[http://search.usa.gov/search?affiliate=web-sdmg-
uspto.gov...](http://search.usa.gov/search?affiliate=web-sdmg-
uspto.gov&query=provisional+patent+application)

If possible, consult a (reputed) patent attorney. A patent will not only deter
competition but also add (significantly) to the valuation in any possible buy-
out deal.

Since it is _this_ useful, if you can't patent it, think about how long it
will take for competition to enter the market and then devise the future
course of action accordingly. In case patenting is not an option, I'd suggest
ramping up your marketing (very) quickly to grab market share fast while you
still have the first mover advantage.

HTH

~~~
iontheprize
I'm meeting with a patent attorney on Thursday to find out the answer to that
question. I think it is, but I'm going to find out and hopefully have a
provisional patent filed as soon as possible. I agree 100% with you that we
have to act fast in order to grab market share and the person I'm dealing with
fully agrees with that. What I've built isn't rocket science (though not easy
either), it just simply appeals to the market really well. Therefore, moving
fast and having this person introduce us to the players in the market is very
important, but he's not interested in just commission or even salary.
Therefore I'm leaning towards sharing some of the company with him. It seems
like a good trade-off to me at this point. Thanks for the comments.

~~~
sagacity
Great! A provisional patent application is a quick (and relatively
inexpensive) way of obtaining a priority date of filing - to sort of 'stake
your claim', giving you a one year window to convert to a full application, as
I'm sure the attorney will tell you.

Indeed, the beauty of simple (and unique) things is that they often appeal to
the markets big-time. How many times do we come across something _really_
simple and cool only to kick ourselves: why did _I_ not think of this?

All the best and God speed.

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sagacity
If you _do_ go the middleman/finder's fee route, consider structuring his
reward on a 'sliding scale', possibly with a cap.

Also check the Lehman Formula:

<http://en.wikipedia.org/wiki/Lehman_Formula>

HTH

~~~
iontheprize
Thanks for the link. That's definitely interesting.

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baremetal
Something smells fishy. Especially if he has never precipitated a harvest
before.

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brk
What did he suggest? Has he done this before, and if so what were the terms?

FWIW 10-15% is about right from the few cases I have direct knowledge of, but
it depends a lot on the final deal size and terms.

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iontheprize
He's helped companies with product placement/customer introductions in the
industry, but never to an acquisition. He hasn't suggested a number at this
point but would if I wanted him to do so first. Unfortunately I couldn't even
estimate a deal size at this point other than some number I pull from the sky
and play with in spreadsheets. Thanks for your input.

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calebhicks
If you are intent on following through and selling, you should come up with a
sliding scale. Maybe 1-2% for the minimum of what you'd sell it for, and a
bigger percentage (10%) of the difference if he sells it for more.

I don't know if that is standard practice, but it seems reasonable to me.

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JonathanWCurd
I would say it really depends on the deal size. You want to reward them for
their efforts but not overly reward them.

Also if these parties are that interested and your product is that good or has
that much potential they will find about you quickly with or without the
introduction / broker.

