Consulting for Equity Arrangements

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by a searcher from Northeastern University
in Minneapolis, MN, USA

4mos ago

Consulting for Equity Arrangements

Does anyone have any experience partnering with a company that plans to sell in the near / medium term on a consulting basis to earn equity and potentially a right of first refusal to buy the business at an agreed upon multiple? It would be great to learn how these were structured (e.g., based on revenue or EBITDA growth?). I see a lot of businesses that are too small, but feel like I could make an impact in growing them, thus another way to fill the proprietary pipeline while taking risk off the table (i.e., you get to see how it runs before committing). Thanks!

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reply by an intermediary 4mos ago
in Philadelphia, PA, USA

Hello there, yes, we have experience in this. This perspective is a great way to develop off-market proprietary deal flow. For us, our approach isn't always consulting for equity; this is because we are a Boutique Capital Advisory Firm specializing in capital strategy and execution for LMM acquisitions. Our approach is an upfront retainer and a success fee on the successful exit, which we help execute from growth to exit. However, if you're looking to consult for equity, then eventually acquire the same company you're consulting it is a strong approach. Just be aware that it is a long game approach, and make sure you structure it in a way that protects you in the case that you decide not to acquire it. Our project scope with clients are 12 month projects, and if they decide not to sell at the end of the 12 months, then our success fee is executed specifically on the growth and difference in the valuation. I.e - From $700K EBITDA to $1.7M EBTIDA, we're paid a % for $1M in bottom-line growth. I hope this is helpful, feel free to reach out. I am open to sharing more with you privately.

reply by an intermediary 4mos ago
in Charlotte, NC, USA

I think your question is three parts: (a) are you a 1099 or W2 employee of the business? (b) are you telling the owner up front that you are interested in buying? (c) are you establishing an exit value and earn-in? I have seen and advised searchers with low experience and capital to go get a job in the target industry. This could be eitherredactedindep consultant) or W2 (employee) arrangements. I've seen both and it largely depends on your skillset. Salespeople are almost always W2, fractional CFOs are frequentlyredactedMake that your own. Should you say anything to the owner? I think so. Especially if you are asking to take a role that doesn't fit your current experience. Sales roles are perfect for this and are the best way to get underwriting to look positive. This person has direct experience in the industry and can sell the product. Check and check. Personally, I think earn-ins are double risk on the owner. First, they trust you can do the job (hiring risk). Second, they trust you can raise the balance and close the deal. My first-glance advice is to leave this out of the initial discussions.