A good friend introduced me to a recurring investment opportunity and I am looking for advice and ideas on compensation approaches for the introduction.

Here are some details of the opportunity:

• I provide 100% funding for each project
• Expected return per project = 20-22%
• I have been given the opportunity to fund 4+ projects per year
• The opportunity is expected to last a few years

• I wouldn't have the opportunity without his introduction and personal reference

How should I compensate him for the opportunity? Thanks, I am interested in to hear your ideas.

Also what's the deal?

No, he's not a promoter and is not otherwise compensated. The company is not seeking investors. My buddy got me a meeting with the right person at the right time.

Is your buddy invested too? Is it a limited partnership you're investing in?

Thanks Yukon. Makes sense to compensate him from profits. I am trying to determine: what is an appropriate share of profits? And should his share stay the same for future projects -- or do I cap his compensation to a set number of projects?

He is not invested, but would like to. He doesn't have the money to risk -- he brought this opportunity to me with the idea of a "partnership" where he would receive the profits from every third or fourth project. I am trying to decide if that is fair trade. I am carrying all the risk but I there is no opportunity without his introduction. How much is his introduction worth? And for how many future projects?

20-22% of your investment? 20-22% IRR?

Just not enough information to advise anything here..

I wouldn't do more than 10% of your net

My before-tax profit estimate for each project is ~22% of the investment for the project.

It's hard to say really. But I'm inclined to say zero unless you want to do a finders fee of 1% on net Return.

Ultimately there's plenty of opportunities out there having the "in" isn't the end all be all.

What's does he comp you if you lose all your money? Maybe it should be the same number.

One method albeit maybe a little complicated could be to create a limited partnership as your investment vehicle with him in it.

Good feedback, this helps. Thanks for the responses.

Not something worth worrying about until the deal(s) are profitable.

If they aren't, no compensation is needed - just don't hold it against him.

If they are, then you can consider what it was worth to you. If it's likely a one-off profit, I'd give a percentage (how much that is, is up to you - I've compensated as high as 50% for opportunities that otherwise I would not have known about or had access to). If it's something that will continue to be profitable for many years like it sounds, I'd give a one-off finders fee.

what does your friend give you if you lose money?

what does he give you if you only make 2%? 5%? 10%

To keep the friendship in good standing I'd buy him a nice little gesture right now (i.e. bottle of hooch or gift card to nice restaurant). Then evaluate once you get some profits rolling in.

why get roped into something now?

if he's a true friend he realizes you are taking on way more risk than he is....he has none!!

I'd need way more details

Sounds crazy to me

What a coincidence, I am also not looking for investors but would be open to someone funding 100% of my next project. I won't tell you what it is upfront and I can't offer you any security if it bombs. You could certainly hope for 22% ROI and pay me a finders fee once that plays out.

If anyone is interested, DM me.

Couple big questions to ask yourself on every deal:
-How is the guy across the table from you getting paid? The angrier that question makes them, the more likely you're getting scammed.
-Why are they reaching out to you? Someone who has never done limited partner deals. What do you offer they can't get better/faster with a bank or private equity group? Its usually one or two things: You're the sucker and the bigger institutions will see them coming a mile away, or they are too small/risky/bad books for a bank or PE group to lend them money.
-Ask them what other deals they have done and their results.
-Why do they not want any skin in the game here?

This sounds like a real estate deal, tangential to real estate like construction services, or selling some oil and gas minerals per production zone. Run. This will be some boondoggle where they take your money, hand it over to a construction company they manage, go over budget, fold, and you'll never see it again. Or if its OG minerals, their latest well did 22% IRR, and they're certain they're gonna hit that again on the next hole (they wont).

The S&P is stupid hot absorbing inflationary dollars right now. They're offering near S&P500 ETF IRRs for orders of magnitude increase in risk. And what shocks can they absorb that the broader market cant?

This sounds like a shady real estate deal that is going to go bust in about 3-4 years. Probably less.

OP, I don't know how much money you have. If you don't mind burning it. Fine. But if this is serious money and a big chuck of your assets, I'd run as fast and as far away as I could.

Edit: One Meen Ag beat me to it.