Q. While we were pitching a new feature to a big client, he asked us if he could invest in our startup. He’s one of the key decision-makers in his company and has power over this implementation. I told him we are not raising now, and we should discuss at a later date, but I’m conflicted about what to do. If we let him invest, he’ll be more incentivized to adopt our solution and make us successful, but I also see a potential conflict of interest.
—Founder of a software platform
This is a great sign you are onto something right. Having a customer that likes you enough to invest is a great vote of confidence, but I see some potential red flags.
It raises an ethical issue for the customer to be asking to invest because it puts him in a position in which he can personally gain by leveraging the power of his office. In order to keep this clean, he would have to recuse himself from the decision-making process—meaning he’d have no input or influence on whether or not or to what degree they implement your service.
Think about what’s most valuable to you. What do you really need? Is it more money? Or, is it a champion or purchaser of your software? I believe you could get far more leverage out of a purchaser of your software and a champion of your solution than an investor.
Down the road, you can have a customer advisory board and invite him to join. That would be a way to honor his role as champion, learn from his insights, and give him some equity on the up-and-up.