Screw Sweat Equity, If You Need Angel Money Prepare To Give Equal Upside Exposure
The Angel is sure as hell taking equal risk why shouldn’t they get equal exposure to the upside? Too often, I hear early stage entrepreneurs talking about there sweat equity as if it’s a human right. It goes something like this:
ANGEL: “So, Mr. Entrepreneur, how much money are you putting into this venture?”
ENTREPRENEUR: “I’ve spent a considerable amount of sweat equity cultivating the idea and will be working day and night to see this venture succeed.”
ANGEL: “So that’s no cash?”
ENTREPRENEUR: “Well yes, no cash.” As if I’ve called his/her mother a dirty name.
ANGEL: “Will you be paying yourself something while you toil away?” This time I’ve insulted their father’s side of the family.
ENTREPRENEUR: “Yes, some small stipend so that I can put food on the table for my family.”
I love the “food on the table”. My response will now be “Yes, for this investment I’ll be using the money I usually spend on my child’s lunch.”
I’m here to set the record straight. The after tax dollars Angels put into these ventures are a tangible manifestation of their own sweat equity that has actually been translated into value – dollars. Follow me here; the dollars represent not only hard work but hard work that was exchanged for money in excess of necessities” now used for this investment. Those dollars are not speculative they are proven value.
To review, the Angel is supposed to provide after tax dollars to start the venture. For this, the Angel’s investment is often valued on a percentage basis less than the Entrepreneurs vaunted sweat. That’s Bullshit.
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