This content was created by Ryan Deiss. This content was uploaded by Ryan Deiss. This is a podcast excerpt titled "4 Types of Equity Consulting Strategies" (from the show "Business Lunch with Roland Frazier and Ryan Deiss") recorded June 28, 2022. In the excerpt host Roland Frasier explains four categories of equity consulting deals—advisory, operating, transaction/event-based, and performance—gives examples and guidance on how to calculate equity (service value divided by valuation, plus risk-based multiples), and discusses typical percent ranges and deal structures. The segment is followed by a promotional ad (labeled SPEAKER C) for the EPIC Deal Fast Track acquisition program with a direct call to action. Ryan Deiss is referenced in the show title but does not have speaking lines in this excerpt.
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And then in terms of consulting strategies like equity consulting strategies, they typically fall into one of four categories. Advisory deals are when you're providing advice, right? These are the very common. I'm going to be on the advisory board and that's typically a very, very, very low amount of the company you're going to get. If it's a Silicon Valley deal, it might be a quarter point now. A quarter point in a company that ends up being worth a billion dollars. That's not a bad thing to have, right? So it's not that that will be worthless to you, but most of the time the companies are not going to be billion dollar valuation. So to me it's a good idea to, you know, to try to get involved in companies where you can get a little bit more. The lowest one that I've got right now is three points and that's in a, in a hundred million dollar company. So I figure three points, you know, is gonna be $3 million and it's probably only gonna go up from there. So that's good. It sounds like a little tiny bit. Cause it is. But because it's a bigger pie, you know, it, it's worth having. And they can be certainly more than 5%. But I'd say the average advisory deal is going to be in that really 1 to 3% kind of range. The guitar mastery method would be a good example of that. That's a company I've got three points of and they teach guitar training online. They have grown like crazy and I'm just really there to answer their questions when they want. They reach out. They actually emailed me today, but they'll reach out to me maybe 5 times a year. But because I did the 25k consult with them initially and we laid out an extensive game plan and then had one more really comprehensive meeting after that, now it's just executing on the plan. So it's, it's just when they have questions, they'll, they'll text me or message me and, and we'll come up with whatever they need. And you know that, that works out really well. The second type would be an operating deal. This is where you're a contracted operator and that's typically where you're going into some sort of operational role. So you're going to be their media person and help them buy media or you're going to be their revenue officer and help them grow that way. Or, or you're going to be their cfo or you're going to run the operations of the company. Typically you're coming in here as an ops consultant. On the low side, I would be expecting around five points. On the high side you might end up doing a 5050 deal. I don't see those usually being more than that. We did do one with a couple of other partners where Collectively we controlled 67% of the company. But that's, that, that's unusual. So that's where you're going to actually do that. And that one that we did that deal with is a software company, basically is a webinar software company. And we actually, it was kind of interesting because I did a consult, I did a 25k with a gentleman in Israel who has a really big following and does a lot of webinar sales of all kinds of things. And he came to me on a consult and we met and at that time I said, you should really get equity in these companies that you're helping out instead of just getting fees. And we ended up, he said, well, would you be willing to do it with me? And I said yes. And we ended up acquiring 67% of the webinar company that he was using. And so we own, you know, 30, whatever that is, 33 and a half each of that. And then the owner has, has the balance. So, so those are deals where the guy from Israel is running heavy operations for that and all of the marketing. And then I'm helping them with their positioning for sale and also sending them business. And then the third type would be a very specific time based or event based transaction. And so this is, you know, like a project based thing where you're going to help with an acquisition or an exit or getting funding or something like that as a transaction facilitator. Those are typically 1 to 20%. There's a deal right now that we are in the process of exiting. And this is the Big Block Realty. It's a real estate company. And so I'm basically helping with the exit in exchange for five points of whatever the company sells for. So I've done lots of other things for the company on different deals in the past. But when we get straight to can you help us sell the company? I can help you sell the company. It's five points for doing that. And you know, and that'll be a really nice seven figure plus. Fee for doing that. So that's, that's a kind of a transaction based thing. We're just going to accomplish this one thing. And then the fourth type would be performance deals. So that's where you're going to put your money, where your mouth is. And you're not going to say, I'm going to come in as an operator and we don't know what's going to happen. You say, I'm going to come in as a performance based consultant and we're going to achieve some specific result. And that's a wild, wild swing based on what you're going to do. It might be 5% or less, it might be 75% or more. It's just totally depends on the value of whatever you're going to do and you know the company that you're coming into. So a great example here would be PCs Prime Corporate Services, which is a corporate formation company. And I came into that company to accomplish on a performance basis helping the company grow to a certain point where we're going to sell it. And So I got 10 points of the company for doing that in a profits only interest deal. So that just kind of gives you an example of like a lot of different ways to do that. So as far as kind of, how do you calculate the equity? Going back to what I were talking about earlier, the money value of your service to your client divided by the valuation is going to equal the value. So if I had a hundred thousand dollars value of the services that I was going to provide and the company's valuation was a million dollars, I'd divide the a hundred thousand by the million. That would tell me that I need a 10% interest in the company. So that's the easiest way to do it, I think. And again, there are all kinds of kickers. Like I typically like to get a 2 or 3x on my service value because I'm giving up cash, I'm taking risk. Anytime you take risk, you should be compensated for it. We learned that in every part of how we value businesses and how do we get to sell businesses. Risk is everything. So since you're taking risk, I think you should get some sort of multiple of what you would otherwise get paid in cash because the cash is guaranteed the risk. We have no idea what's going to Happen. We know 90% of companies fail, we know 75% of Silicon Valley backed companies fail. So there's a pretty big risk, right? So knowing that that risk is there says, you know, I should get a premium if I'm going to become an investor by giving effectively this cash. So that's really at the end of the overview of how we do these deals. You know, what are they, why do we do these, how do we do them, how do we market them and get deals, how do we structure, how do we deliver our consults, and how do we structure the actual equity once we get it? That's what we've covered.
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