Mark Kohler warns entrepreneurs not to call silent money-givers partners. A true partner has a voice in decisions. Mislabeling them creates securities violations and criminal liability. Choose the investor lane (passive, no governance) or the partner lane (shared decision-making), but never blur the lines.
Chapters
In a partnership raise capital situation, please do not call this person an investor. They are a partner. They will have a voice. Now we're going to start blending into the third lane. Because if you start wanting a partner that's a silent partner and just gives you money and shuts the hell up, they're not really a partner. And if they lose their money, they're going to claim they weren't a partner. And now you've got a securities issue and we're talking jail time. We're not talking just a little civil lawsuit. If you're out raising money from investors, then you better be in that investor lane. If you're raising money from partners, you're in the partner lane. So you kind of see what's coming. Here's the pro and con. The pro is you might be able to raise money a little faster. You might be able to have people that bring other intangibles to the deal. They bring money to the deal. The con is you've got to give them a bigger percentage or a percentage of the outcome, and you have to give them a voice. Doesn't mean you don't have majority control on certain issues. But they're going to have a voice on a variety of issues, because if they don't, that means they're a silent partner, they're an investor, and they can sue your ass. So be careful.
