How to incentivise shareholders to help further operationnally ?

November 03, 2021

by a searcher from INSEAD in Paris, France

Hi,

I am closing on a deal (but still got a 100k equity opening if you are interested, great IRR!) and through discussions with my investors, I'd like to find more ways to incentivise them to help operationnaly post-acquisition (they also have signaled they'd like the same).
The deal for investors is a bit of equity and some convertible-debt (with a non-conversion premium), and they are already getting a great IRR return, so don't want to allow any conversion of the convertible debt, and don't want to add any ratchet on top.

It's not a big target (~1m EBITDA), so giving them a salary doesn't feel super approriate, and also not exactly what I am after.

What mechanisms have you seen that would still incentivise them to help and get involved for the operations of the business (e.g; regular catch-up, advice, on-site visits...) ?

Thanks a lot in advance,
Clément Hurpin

Reply by a searcher
from London Business School in Oslo, Norway

My suggestion would be to appoint the investor(s) as a special advisor and compensate for an estimated time per month (to be used at your discretion) at an agreed rate? Example could be to pay a day rate for 1 day a month, roughly equal to 8 hours and you make use of the 8 hours as you please (phone call, meetings). I would make a formal agreement that is time bound (e.g. for 6 months to a year) and specify in the agreement what you want out of it.

Reply by a searcher
from Harvard University in Fort Wayne, IN, USA

I’m curious to hear others’ thoughts, but I think you might have gotten it a bit backwards. Investors tend to either enjoy getting involved or they prefer staying out of the details (unless there are major issues). If you want heavy involvement from them, you need to find investors who love diving in and then get them to invest, not find investors and then push them to be heavily involved.

+3 more replies.

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