How not to raise money

  1. The finder taking 5% equity. Now you (investor Joe) invested in a team that just got diluted by 5%. They have less control of the company; there’s someone on the cap table that you don’t know (if you had known him the introduction would have been made ;-)); there’s a 5% share of dead equity in the company (equity belonging to someone that’s not actively helping the company); and finally, there’s someone who got better terms than you. Once again, investors will do everything they can to avoid that.
  2. The finder taking 5% cash. In this scenario, the company sends off 5% of the received investment sum to the finder. From the investor’s perspective, the company now has 5% fewer resources to succeed. The company waived 5% of its hard-earned cash flow and the investor invested 5% less of what he/she wanted the company to have. The investor wished to invest money in order for the company to use that money to grow. If 5% of the investment sum goes to waste, the chances of success decline.

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Amit Mittelman

Amit Mittelman

MBA candidate at HEC Paris. Formerly, a co-founder at Approve.com and an EIR at Entree Capital. Love the startup hustle.