Considering some consulting, how to structure pay

[corn18]

I retired in 2021 @ age 55. I was a business development executive in a defense megacorp. I had no intention of doing anything in that area and stuck to that for the last 4 years. I have done nothing, although I have maintained my network with just my friends. Got a call two days ago from a long time friend and mentor of mine. He is a principal in a PE firm and their current target is in my field of expertise and I can help them. A LOT. This isn't my first opportunity that has come up, but I have turned everything else down. This one intrigues me and I want to participate. Money isn't the primary objective, I want to help change the world.

My friend asked me what my expectations are for compensation. I said I don't have a clue, but I know you will take care of me. Being a sales guy at heart, I want to structure the pay so I get nothing except actual expenses and when I win, they pay me a boatload of money. My wife told me to get paid as I go and ALSO get a a boatload of money when I win. She is always bringing good sense and logic into arguments. Very frustrating.

My total comp when I retired was $750k/year. If I actually pull off what they want me to do (and I will), the principals in the PE firm will make millions, each. I'm thinking $500/hr (below market for someone like me) plus expenses and then some amount when they have an equity event.

Appreciate your thoughts.

 

[pb4uski]

Well, one extreme would be what you outlined... expense reimbursement and an equity stake that could be worth nothing or could be worth a lot and that lot would be preferenced income. The other extreme would be just $x/hour of cash and no upside kicker.

Since money isn't the primary objective, do you think they would go for the former? Might be a win-win. My only reservation would be that what you end up with will be based on their decisions and you won't have any control over the results but you know that going in.

 

[USGrant1962]

I retired from the government arm of megacorp as a BD exec at 55 in 2017. I worked Department of Energy and some foreign and commercial stuff, but have never really dealt with PE. Starting in 2019 some folks I knew in the industry approached me about consulting. When I retired I had a vision of doing a little bit of consulting to pay for ACA - maybe some a color teams here and there - but have been working about 1/3 time since 2019 for multiple clients. The larger time commitment was actually kind of fun during the Covid lockdowns and, for various reasons including the new Administration, it looks like it might reduce going forward - which is fine with me.

So, to your question. I don't know how long the deal will take but you might want to negotiate a retainer. I've had two clients offer me retainers. As you know, a retainer pays for a minimum number of hours per month whether you work or not. The benefit to the client is they get exclusivity on you. In my business there is some value to the client because I could work for their competitor on a different proposal tomorrow. Not sure if that matters in your one-off PE deal, but no harm in asking for a retainer.

On your rate question, I have only limited experience in PE space and regular consultant rates don't go that high in my business. From what I've seen though, if you are with the Wall Street guys the sky is the limit. I do engagements with firms that hook up Wall Street with SMEs (GLG, AlphaSights, etc) and, yea, my rate with them is $500. But that is for one-off one hour phone calls when they are looking to buy a company in my business area, and I only do a few of those one-hour phone calls a year.

PM me if you want to chat some more.

 

[Route246]

I was in a similar situation 15 years ago with a moonlighting offer for an ex-manager who was CEO of a small startup, well-funded and undiluted and backed by a few very smart leaders in the space. It was a short-term gig and to perfectly honest I would have probably done it gratis for him as he helped advance my career through the years and made me some money when our company was acquired.

I told him I was willing to work 100% stock but he said it was very risky and he felt uncomfortable with me taking that much risk so we settled on 50-50 at $200/hour. At the time it was very risky and had nothing but a team of engineers and an idea. When I finished I worked 400 hours and acquired a $40K stake in his company. As they moved through an acquisition and consolidation they remained extremely profitable. I was really happy with the $40K of extra money at the time and just filed away the thought of cashing out the stock. They took the company public in another country and the lockup ended many years ago and my stake is a little over $450K after selling $40K on that exchange and repatriating into dollars at my bank. He told me I'm free to sell anytime but as a courtesy I told him I won't sell unless I hear that he is selling which is publicly available information. The growth has been steady and profits continue to increase nicely. I have no reason to sell at this point. The work I did for the company helped them immensely because it is fairly specialized and would be difficult to buy off the street so it was a mutual convenience arrangement. We remain close friends to this day. I actually under billed him a bit and when he found out he was a little annoyed, I just told him it slipped through the cracks so our relationship is part friendly and part professional. By that time the private value of the stock was up 5x so it would have been a hassle to back-bill so I told him to forget about it. His stake in this is probably on the order of $500M or more. I trust him as he is already wealthy from previous ventures.

I took this gig with no expectation other than doing a friend a favor. At the time it was a private company with no timetable to go public. I knew the investors and I know they have infinite patience so this was not some get rich quick scheme, they were building a sustainable business. My wife asks me about it occasionally and I told her we were made whole already when I cashed out the 40K and are playing the the house's money now. She laughs about that. I told her someday it may be work many millions so let's just leave it as is and she understands my friendship with the CEO and knows what he did for my early career.

I brag to a few of my old friends about being 1-for-1 on my venture investments. They all tell me to quit while I'm ahead. LOL.

 

[Koolau]

I retired in 2021 @ age 55. I was a business development executive in a defense megacorp. I had no intention of doing anything in that area and stuck to that for the last 4 years. I have done nothing, although I have maintained my network with just my friends. Got a call two days ago from a long time friend and mentor of mine. He is a principal in a PE firm and their current target is in my field of expertise and I can help them. A LOT. This isn't my first opportunity that has come up, but I have turned everything else down. This one intrigues me and I want to participate. Money isn't the primary objective, I want to help change the world.

My friend asked me what my expectations are for compensation. I said I don't have a clue, but I know you will take care of me. Being a sales guy at heart, I want to structure the pay so I get nothing except actual expenses and when I win, they pay me a boatload of money. My wife told me to get paid as I go and ALSO get a a boatload of money when I win. She is always bringing good sense and logic into arguments. Very frustrating.

My total comp when I retired was $750k/year. If I actually pull off what they want me to do (and I will), the principals in the PE firm will make millions, each. I'm thinking $500/hr (below market for someone like me) plus expenses and then some amount when they have an equity event.

Appreciate your thoughts.

Sorry, I'm trying to think in terms of those proposed compensation figures. Of course, if you need the money, it's a no-brainer. If not, no amount is really enough unless you want to do it (maybe even for free) and it sounds like you do. Therefore, I'd say "go for it" if it is what you want to DO. I envy your passion way more than the money (and I envy the money - just a bit).

 

[corn18]

Thanks everyone for all your feedback. Really helps me out. I will update when I get an offer on the table.