New Venture Lab: Equipping Christian Entrepreneurs

Question

For the last few months, I’ve been working with a patent holder to commercialize his product on a local basis.  I also happen to own a company in the same industry and plan on distributing the product to my customers.  Recently, he asked me to introduce the product to a national manufacturer with whom I used to work.  I have several good relationships with my former employer at the executive level so I believe this would be relatively easy for me to accomplish this, although it would likely take substantial time and effort away from other profitable activity.  I believe the new product has great potential and my former employer is in a solid position to commercialize it due to their low-cost manufacturing and national distribution capability.  Do you feel it would be appropriate for me to ask for some type of compensation for brokering this deal and what do you feel might be reasonable?

Answer

Since your time is valuable and you are in a position to add value to this relationship, I feel it is appropriate to ask for compensation.  It’s quite common for people in your position to ask for a finder’s fee.  If you are going to putting a lot of time in on the deal over several months until a deal is finalized.  A finder's fee can take on many forms, but one way to think about it is to get reimbursed for your time and expenses and get a success fee once a deal is finalized.  The level of the finder's fee has everything to do with the value of your time and the potential value of a successful deal.  Let's say you typically bill out your time at $100 per hour and you think you will spend 25 hours per month for a number of months trying to get a deal closed.  An example finder's fee might then be $2,500 per month, plus a success fee (tied to the value of the deal, but not likely to be more than 5% of the overall deal value and more likely to be 1 - 2% of the deal value.) 

As an alternative since you plan on distributing the product once it is commercialized, you might ask for an exclusive territory and/or special pricing.  However, I would not ask for both the finder’s fee and exclusivity since this could be perceived as taking advantage and could compromise your relationships.