How does the entrepreneur ask for help without getting duped

By San Diego Union-Tribune

July 23–Of all the gin joints, in all the towns, in all the world, this entrepreneur walks into mine.

Recently, I have had two occasions in which really smart entrepreneurs have come calling. In each case, I had compassion and empathy for the fact that they did not know what they did not know. By that I mean, it is really hard for the early stage start-up entrepreneur to be trusting enough and to feel safe enough to confess that they need help — and the help they need is specifically in areas that are foreign to them. In one case, the idea that they would have to vest their stock over time was a concept they had not heard of. They got the corporation correctly formed in Delaware, but the agreements they entered into with their co-founders were destined to either lead to litigation or to justifiable homicide.

I am not trying to sound arrogant. I have a raft of high-priced legal eagles who protect me from that by reminding me often enough of what I don’t know. But what I am puzzling about is this: How does the entrepreneur ask for help without giving in to the suspicion that he is going to be taken advantage of?

Corporate structure and venture financing are often viewed in an adversarial way, as win-lose, like going in to buy a used car and you know — you are certain — that somehow you are only going to end up with three tires.

A couple of young geniuses come in to see me. They have revenue, they have a contract with a Fortune 500 that might be border-line fabulous. When I began to discuss how to structure their company going forward to maximize the revenue opportunity (remember, everyone thinks that they are just one small right hand turn from becoming a unicorn), they thought that my modest opinion as to their pre-money valuation was tantamount to heresy and blaspheming Mother Teresa.

It is important for the mentor/investor to stand in the other guy’s shoes, to understand how they got to their conclusion. At the same time, if the shoe is the wrong size, in the final analysis, your toes will curl up and gangrene will set in.

Ultimately, we made a deal. They are really smart guys. My experience with them made me think about how hard it is to trust advice. In certain areas like health care, insurance, stock market, real estate etc., most of us accept that we are not experts, so not much push back there. However, when you have created a company and technology and revenue, the assumption is that you also are required to be an expert in other areas. (That is why we ask movie stars to opine about geopolitical strategy).

Another young engineer entrepreneur comes to see me. What he has achieved with almost no money is remarkable. His product is superb. When I listen to his tale of woe, I am torn between laughing out loud and crying. He danced in the Valley with some big-time crooks, (shades of Wolf of Wall Street), they worked him over, they abused him, and so he comes to me like a wounded animal — rightfully angry and scared. Two components are important. Can I behave in a way that inspires his trust, and by the same token, is he in a frame of mind that he can recognize it?

On the money side, my investor pals run the gamut. I know one guy who will throw $25,000 at a passing car, and I know others who want to conduct three years of due diligence. Match that spectrum against entrepreneurs who are fearful and those who are all-in too quickly. Lots of square pegs and round holes.

I am willing to concede my own inadequacy, that the fault, dear Brutus, is not in our stars, but in ourselves. But I also want to offer a solution. More rigorous teaching. Not just of how to pitch your deal, but how to think strategically about the nuts and bolts of a deal — and to realize that if they are not screwed down correctly, the car is going to explode when you blow by 80 mph. The entrepreneur thinks the problem is what color to paint the car, and the mentor worries about how to open the gas cap.

Rule No. 569: Trust is a two-way street.

This article provided by NewsEdge.