I have a few of clients that are examining opportunities that would force them to give up equity stakes in their companies.
One client is looking for ways to increase his business base. While on vacation he met a gentleman that was between assignments and appeared to have experience scaling up businesses. After a number of discussions the gentleman was willing to join the company, but wanted 20% of the company with no cash just to join the company.
Another client was looking for outside management talent to bring in an outside perspective. They met with a number of candidates; a couple of them demanded salaries that equaled 25% of the company’s gross sales as well as 20% of the company’s stock. The surprising thing about this is that they knew what the package range was before the interview process started.
The final client is transitioning their business from one company to several. With this modification the business structure and strategy needs modification including management and sales. To assist in this process he has forgone 40% of each company to a couple of Millennials to tie them to the business. Their ultimate buyout will facilitate his retirement.
With the first two examples to cost far exceeded any potential benefits. When someone is demanding a ridiculous payment with no guarantees and no true track record with the company, it is easy to see that they have a short term perspective and only are interested in cash.
Make sure the benefit of giving up equity is worth the cost. If you need a non-biases perspective give us a call.