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This chapter is from the book

It’s Not an Investment, It’s a Partnership

Every person who reads this book, and especially those who intend to put money into a small company, should be absolutely sure that the relationship between you, the investor, and the entrepreneur is a strong partnership—in reality, a “marriage.” It must be a trusting relationship in which neither party is trying to get the upper hand. Both parties must be working together to make money. Therefore, every investor should get to know the management of the company before investing any money in it. We usually try to spend extra time with members of the management team so that we feel comfortable with them.

There is the story of the VC who was talking to a group that had three “Doc-in-the-Boxes.” This is slang for a medical delivery system. In place of a Jack-in-the-Box where one goes for a quick meal, you have a Doctor-in-the-Box, which refers to an accessible unit that provides quick, efficient, and cheap medical service. In this case, three individuals owned three Doc-in-the Boxes and wanted a large investment so they could continue to expand. After meeting with them for a full day and after being convinced that the VC should make the investment, the VC joined them for dinner. After a few drinks, they began to tell the VC how they really operated the business.

First they described (in their terms) how they were going to “screw” the IRS and not pay their taxes; then they described how they were going to “screw” their suppliers and not pay them, “screw” Medicare and Medicaid to get higher payments, and “screw” a few of their patients by overcharging them. The VC knew before that dinner was over that if the VC made the investment, someday in the future, one of those “screws” would have the VC’s name on it.

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