The short answer: Because otherwise, when it comes time to negotiate, you’ll end up with a bunch of nothing.
Most young entrepreneurs don’t spend anywhere near enough time doing the fundamental math necessary to answer a very simple question: How much am I going to end up with when this deal is done?
This isn’t about being greedy. It’s about setting reasonable metrics for success and aligning, to the greatest extent possible, your interests with those of your investors. If you spend some time addressing these issues early on, you can save yourself a lot of stress and ugly surprises later.
I’ve been working with several small teams of young guys with big plans and big ideas and a pretty clear and realistic view of what it’s going to take to succeed. In terms of effort and commitment, they’re prepared to do whatever it takes. But they have only the vaguest idea of how to even think three to five years ahead, and of how to try to understand the economics that will obtain at that time. That’s what’s really going to determine the value of their interests in the business. They need help in a hurry.
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