Typical terms for handing over a deal

May 28, 2024

by a searcher from Columbia University - Columbia Business School in Washington, DC, USA

Hi all,

I’ve got two really nice $4-500k SDE opportunities in my pipeline right now. Neither is right for me but I’m passionate about the opportunities and want to see them succeed.

What are my options for staying involved at arms length and maybe retaining a minority stake?

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Reply by an intermediary
from Wesleyan University in Granville, OH, USA

One suggestion - separate the two components here, the finder's fee and the minority stake. The finder's fee you can arrange with either the buyer or seller before making the direct introduction. In general I find that ~10% of intermediary fees is reasonable unless you're bringing something very specific to the introduction. If there's no intermediary it might be something in the range of 1/2% to 1% of total consideration for a deal of this size. I definitely invite other perspectives on fees here, my experience isn't in this size range. Treat the equity question as a separate one. You can offer minority equity to join the buyer. If your referral client and the buyer end up being the same person you may be able to negotiate rolling that finder's fee into equity. By doing it this way you maximize chances of participating in at least one of those elements and either one will be helpful to the seller.

Reply by a professional
from University of Illinois at Urbana in Naperville, IL, USA

Finders fees are one way to monetize opportunities that you don't want to pursue yourself. However, since you mentioned that you want to stay involved at arms length and retain a minority stake, as well as your desire to see the opportunities succeed, I'd suggest that a finders fee is not your best option. Rather, you are more likely to achieve your goals by seeking equity and operating partners to move forward with the opportunities using their own resources or access to capital, while you retain a minority stake and a level of involvement you are comfortable with. In addition to enabling you to retain a minority stake and choosing the level of involvement you want to have, the fact that you aren't asking for a finders fee in cash helps the opportunities succeed by enabling the cash that would have otherwise gone to a finders fee to go into helping the opportunities succeed instead.

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