Equity for intros?

Your startup’s equity is too precious to trade for contact information. If you are a startup founder, please don’t give up equity to someone in exchange for access. If you work hard, and the startup community is healthy, you won’t have to.

When I think of startup communities, I see an expanding pie. Startups use technology and scaleable business models to quickly reach a large number of clients. They create new markets enter existing ones that are growing. If this growth occurs in a healthy ecosystem, more and more capital will be available to fund new startups. The pie grows and the cycle continues.

The one exception is the cap table. It’s limit is, and will always be, 100%. Every percent is crucial and should be used optimally. Giving equity away can be a very effective tool for attracting and motivating talent or capital. It should be reserve for people who are deeply involved in the day-to-day business or who invest capital and add value.

So don’t give equity away to someone because he or she “knows the industry,” has a lot of great contacts to introduce you to or promises to help out in the future. If you are persistent and have a good product, you will get to the right people yourself. That is part of your job as an entrepreneur.

There is no shortcut to building a strong network. Work hard to build relationships and rely on ecosystem actors you know well to help you. If the startup community is functioning well, you will be able to meet the right people for free.

Here are some alternatives to avoid trading equity for intros:

  • Build relationships with fellow founders. When the time comes, they can be a great source of intros.
  • Apply to government programs like Startup Peru for equity-free cash
  • Give away equity only after an intro produces a tangible result (ie. closed investment or commercial contract)
  • Enter accelerator programs that provide a breath of services, knowledge, and contacts that will help your startup on multiple fronts
  • Incentivize advisors with equity only after they put some money in

Keep working to build a genuine network yourself. You, and the equity of your co-founders and future employees, are worth it.

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