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Start-up Advice You Didn’t Ask For

Posted by on December 2, 2011

I hear from a gaggle of start-ups every week, from all over the planet.  Some are seeking money, some advice, some want team members.  Everybody is bootstrapping these days, it not only has to do with the relative difficulty of finding money, but also the current trend of flipping prior to VC involvement.

If one can build a working model on FFF or angel money, and sell out quick, well, that’s a pretty good value proposition for most people.  Most entrepreneurs I know in this position believe if they can achieve this once, surely the model is replicable, and they can do it over and over again.

In a time of bootstrapping, one looks for ways to build a company as inexpensively as possible, whether this means doling out bushels of “founder’s shares”, or offering options in lieu of pay.

I caution you to approach this slippery slope gingerly.

The old axiom still holds true:  “you get what you pay for.”

Two reasons:  you’re not going to (probably) get a very competent team if you hire based on cost, rather than ability, and secondly, oft times these early shareholders are difficult to get rid of.  A major money infuser is going to want a very clean deal, and sometimes that means getting rid of the earliest shareholders.

Conclusion:  have a provision for taking out early shareholders in every agreement (make sure you see legal counsel on this), and don’t expect to attract the best talen out there if you aren’t willing to pay.

(Before you invest or participate in any financial transaction, be sure to seek the advice of legal and financial counsel, to make sure your t’s are crossed, your i’s dotted, and you are in compliance with all federal, state, and local regulations).

 

 

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