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Building successful ventures is no easy feat, no matter what growth stage you’re in. However, many experienced entrepreneurs agree that the really hard part comes post-validation, after the pilot, when it's time to launch and scale (i.e. the growth stage).
It’s at this point that you’ll need to find the right co-founder profile to take your corporate venture to scale and beyond. These profiles are entrepreneurially minded, visionary, open to risk and comfortable with uncertainty—traits not common in internal profiles. So, how do you attract and motivate the entrepreneurial profiles you need?
Short answer: It's all about the incentives.
It takes more than just a competitive salary to attract the right entrepreneurial profiles and keep them truly motivated. You'll need to build a tailored incentivisation package that aligns with the interests of the co-founder and the corporation while also supporting the sustainable growth and success of your corporate venture.
To help guide you through the process, we’ve highlighted five key components you can use to build customised incentivisation packages that meet the goals of your co-founder, venture and parent company. Think of these five components as building blocks you can mix and match to create an effective incentive package that drives your co-founder to succeed.
Let’s dive in.
Key component 1. Base compensation
Base compensation provides the essential financial security needed to attract and retain co-founders, serving as the backbone of broader incentive strategies. Models in this category include:
Employee contracts: Traditional employment agreements offering salary and standard corporate benefits.
Employee benefits: Added perks, including holidays, training stipends, and pension contributions that enhance the company’s attractiveness and support staff well-being.
Management or entrepreneur-in-residence contract: A flexible and often temporary contract designed for C-level and entrepreneurial profiles, focusing on innovation and business development.
Key component 2. Deferred compensation
Deferred compensation aligns long-term interests by offering rewards based on future performance or milestones. Models in this category include:
Deferred salary/bonus: A portion of salary or bonus is held back and paid later, contingent upon achieving certain performance goals.
Phantom/virtual stock: Offers equity-like incentives without actual share issuance, calculated based on the company’s valuation and paid as cash bonuses.
Key component 3. Profit sharing
Profit sharing ties a portion of the compensation to the financial performance of the venture or the individual co-founder, directly aligning their rewards with the venture's success. Models in this category include:
Profit-based: Compensation that is directly linked to the venture's realised profits, paid out as soon as these profits are recorded.
Performance-based: Provides compensation based on achieving specific performance metrics rather than direct profit figures.
Pro-rata team compensation: Allocates compensation from a shared profit pool based on individual roles, duties, and contributions within the team.
Key component 4. Equity incentivisation
Equity incentivisation provides co-founders with a direct stake in the venture’s success, aligning their financial outcomes with the venture's long-term strategy and performance. Models in this category include:
Share purchase: Allows co-founders to buy shares or co-invest alongside investors and the corporation.
Stock options: Offers the option to purchase shares at a predetermined price and timeframe, encouraging investment in the company's future.
Growth shares: Securities that provide payouts to co-founders based on achieving specific performance thresholds.
Buy-backs and buy-outs: Options for the company to repurchase shares from co-founders once certain goals are achieved.
Share swaps or stock options: Allows for the exchange of venture shares for corporate shares or options, linking the stability of the corporation with the venture's potential.
Key component 5. Non-financial incentivisation
Non-financial incentives offer additional ways to attract and retain co-founders beyond monetary compensation, focusing on recognition, work-life balance, autonomy, and significant roles within the venture.
Recognition & PR: Co-founders are credited as co-inventors on patents and are prominently featured in public documents.
Working conditions and arrangements: Includes flexible working options such as remote work, educational events, and competitive pay.
Autonomy: Co-founders have significant control over strategy and operations, including key areas like hiring and policy decisions.
Roles & Responsibilities: Involves assigning key roles in governance and board composition to co-founders.
4 tips to help you build your incentive package
Here are a few tips to help you structure your incentivisation package in a way that is strategically aligned with both your venture and the type of talent you aim to attract:
Tip 1: Consider your exit strategy
Align co-founder incentives with the venture’s long-term exit strategy, whether it’s spinning in, spinning out, or other transitions. This ensures that incentives are tightly coupled with the corporate's vision its plans for the venture's future.
Tip 2: Make it good
Competition for top talent among corporates, startups, and high-tech companies is fierce. That’s why it's crucial to ensure your incentive packages are compelling enough to attract and retain experts and unique talent for the long haul.
Tip 3: Tailor your package to suit internal vs external founders
Recognise that internal and external candidates have different needs. Internal founders often prefer stable employment status, while external ones might favour flexible, entrepreneurial-in-residence type contracts that allow greater autonomy and quick impact.
Tip 4: Consider the venture type
For external ventures, leverage the ability to offer dynamic equity-based incentives like stocks, shares, and options. These are tied to the venture's capital structure and can be pivotal in attracting co-founders, even in the early stages of the venture.
Final thoughts
By thoughtfully combining these five key components and tailoring them to your specific scenario, you can create a package that not only attracts top talent but keeps them invested in your venture's long-term success. Remember, there's no one-size-fits-all solution. The key is to understand what drives your co-founders and align those drivers with your venture's objectives.
Want to know more about how you can use and combine different incentivisation models to attract the right talent, build dynamic partnerships with co-founders and boost your chances of venture success? Check out our report: 5 Components for Incentivising Corporate Venture Co-Founders.
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