1. Your secret sauce
Your secret sauce is the recipe and the ingredients that make you, YOU. Some combination of skills, passion, experience, intuition, etc. has gotten you where you are today. Is it the freedom to walk in a park every day and dream? (Don’t commit to a tight office structure.) Is it your close connection to past mentors that allow you to quickly gain wisdom? (Be careful of a deal that limits your ability to bring mentors into the circle of knowledge.) Is it your passion to reach a financial goal? (Watch out for a package that may feel rich today but could strip your profit and motivation in the future.)
Tip: Figure out that recipe – ask your friends and family what it is about you that has created your success. Whatever you do, don’t sell yourself into a cage where you cannot use your secret sauce.
2. What the investor does not want to buy
It’s not always about how much equity you are willing to sell for $1. Many investors are more motivated by power, prestige, board seats, naming rights, long term income, social good, a quick payout and exit strategy, or even an opportunity to mentor you. A good startup investment deal trades what you want for what they want. Sell them what they want and you will often end up with much more of what YOU want.
Tip: Listen to the investor. Learn from the investor’s past deals. Look for trends that will expose their real motivation. Be creative and make a deal that values their motivation not just X% of your equity.
3. Your Integrity
Duh, right? Well, it happens way more than any of us want to admit. Several years back I got in with an investor group that could make my dreams come true and launch one of our businesses into markets I desperately wanted to own. I knew this group had a reputation for, let’s call it, “delivering a different reality than promised.” I thought I could weather the storm and pressures of making a deal with them. I did for a while, but eventually knew I had to get out or my reputation would become just like theirs, even if I was not like them. The whole “guilt by association” thing. So I got out. We are still friends, but I had several years of relationship mending to do with some suppliers, employees and customers. Don’t waste your time or reputation. Always work with honest money.
Tip: If it looks, smells and flops like a fish, well… Do your homework, ask around, look at past deals and local news articles. People are known by their actions. If you see a bad trend, don’t sell out.
Question for you – How have you been able to raise startup capital without “selling out?” Comment below!
Chris Williams is a serial entrepreneur, investor and advisor for businesses in high risk situations.