Ask HN: How much commission would you offer? | Hacker News Reader

Ask HN: How much commission would you offer?

4 pointsiontheprize16 comments

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.

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?

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.

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

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

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.

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.

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

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).

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...

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

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.

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.

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

Thanks for the link. That's definitely interesting.

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

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.

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.

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.

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.

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