Guy wants 2% of what he raises plus a quarter of my promote

Watch where the investor updates end up. Every deal I've managed where an outside raiser brought the equity, the quarterly letter and the "why was my distribution 40 dollars light" emails landed on my desk within two quarters, because the raiser was already onto his next raise. If he's taking a quarter of your promote, put the reporting obligation in writing with a name attached to it.

Compensation tied to how much capital someone brings in is transaction-based compensation, and that's the fact pattern regulators look at when they ask whether a person should have been registered as a broker. Calling him a co-sponsor and paying him in promote instead of cash doesn't automatically resolve it, because what matters is the substance of what he's being paid for. How that applies to your specific arrangement depends on the facts and on the statute, so run it past securities counsel before you sign, not after the first close.

On the money: 80k on 4m raised, paid at closing out of the equity, so your sources and uses now carries a fee your LPs will see. If the deal ever throws off 2m of promote, his quarter is 500k for work that finished in month two. Price that against what a placement fee alone would have cost you.

The part that tends to hurt later is the relationship. If your LPs' first contact was him, if his firm's name is on the subscription documents and his portal is where they log in to see their statements, then deal two's equity is his to move rather than yours. Ask whose entity signs the investor letters and who holds the investor list. That's a bigger long-run item than the 25 percent.

Also pin down what happens if he raises 2.5m instead of 4m. Does he still get the full promote slice? Get the answer in the operating agreement, because "we'll figure it out" becomes a fight at the moment you're short on equity and least able to argue.

Before you paper him into the sponsor entity, ask your lender what ownership percentage triggers their KYC and their guaranty requirements. Agency and most bank lenders want to know anyone above a threshold in the borrower's ownership chain, and some will want that person on the recourse carve-out guaranty. Confirm the exact percentage in writing with the lender you're actually using. A co-sponsor who won't sign anything is a surprise you don't want in the last week of diligence.

Two clauses decide this. First, where his promote share sits in the waterfall. A quarter of the promote after the catch-up and a quarter of all distributions above the pref are wildly different numbers, and the second version gets written by accident more often than you'd think. Second, whether his interest vests or is fully earned at closing. If he's gone after the raise, a vesting schedule tied to actual ongoing duties is the only thing that keeps the promote share connected to work. Also check the recital describing what he's providing. If it says "introductions to investors" in plain words, you've documented the exact thing counsel will worry about.

As an LP I read the fee table first. 80k of a 6m raise is 1.3 percent of the equity gone before a dollar hits the property, and if it's not in the sources and uses I find out later and stop returning calls. Disclose it. The deals I've passed on weren't the ones with fees, they were the ones where the fee showed up in a footnote.

Different angle. What does raising the 4m yourself actually cost in time? If it's six months of delay and the seller won't hold, then 80k plus a promote slice is the price of the deal existing at all. If it's six months of delay and the seller will hold, you just paid 500k of future promote to skip some phone calls. I've been running that comparison on my own pipeline and I still can't decide where the line is, because I don't know what my own list would produce yet.