My startup is in the application management and cloud computing segment, I have recently been approached by a very well known person in the industry (I know he is known, also know him from past lives about 10 years ago) - this guy is very well connected to the VC community and to all the biggies in our industry (the CA's VMWare's and IBM's of the world). he called on us not vise versa - now he has offered to step in as an "Active chairman" to help with fund raising, ongoing management of the company and (god knows when or even if) the time comes to sell... he practically asked me for an offer - I have no clue... what tips experience can you share please? should we offer up equity? how much?
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Sounds like he's selling. Why did he approach you? Is he currently employed? Is he looking for HIS next venture? Is he trying to sell you his advisory services? The first thing you need to do is understand his motivation. Depending on the answer, next step would be to do some due diligence on him with respect to whatever the proposed involvement will be. Ask for references to other people he's helped, keeping in mind these will tend to be favorable (and if they are not, maybe that's a red flag?) |
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The first thing you need to determine is whether you want that type of help. If you're going to be raising money or doing deals with the large companies he has connections with in the next few months then it might make sense. You also need to determine more specifically what role he wants to play. Ask him to write up a job description including how much time he thinks he will be putting in. Is it just a phone call here or there or 20 hours/week. Once you have the job description and the level of effort he is willing to commit (and how long he is willing to commit to) then you can treat this just like any other hire. If this person is so well known you should be able to determine your own set of references to call. From there you can determine what a fair compensation package might look like. Many people are looking to pad their resume's with high titles and that does not help you. The actual work he does is what will move you forward so having him put the job description together will give you the best idea of his intentions. Just remember always hire to fill a need that exists. Don't hire in anticipation of a need. |
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First question: does "active" mean executive chairman or non-executive chairman? I would only accept the latter. Non-exec's are very common in the UK where I used to work. I found mine VERY helpful in helping resolve management / investor issues. When we wanted to raise capital early he forced our investors to deal with the issue rather than wait for the last minute (like all investors do). As you say they can also be very helpful with fund raising and M&A. But make sure that you're the boss as in ... if you're not happy you can ask him to go. Sometimes non-exec's partner with boards and oust CEO's!!! As for equity - he gets equity one way - he buys it. End of story. I would encourage you to match up to 50% of what he buys with warrants for free stock. He needs skin in the game to make a difference. I wrote about a related topic on my blog that talks about board advisers. If you see point one under recommendations I talk about the same issue - no money in, no real attention. |
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Good advice above. Decide what you expect of him first, and how much it's worth to you. It's reasonable to expect him to make you an offer, not vice versa. He found you, right? |
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