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Due Diligence Ahoy

Oft, what happens is a few classmates gather, and decide to plunge in business,

immediately after school (graduate/ undergrad). These 2-3-4 friends have great

chemistry, and like one another.

Naturally, the trust so essential to partner is there. There is also an unsaid expectation

that the complex work in raising a business would be duly shared. Of course, the capital

pool is why they get together – thinking why risk all of the capital themselves. In many a

cases, as much capital from solo sources mayn’t be available.

They forget that they are surrendering equity in a large venture they would become in

years to come. After all, they never start with small dreams. And it is also known the

first 2-3 years are very critical in deciding the fate of the initiative. They ought to see

that three friends going together, typically let go 66.67% of equity in lieu of salary of 1-2

years per partner – for had they hired people, this is how it would have been.

Sure, the commitment from hired manpower might be less, but there are certain

positive advantages. An errant partner can’t be disciplined easily – the sense of

friendship interferes. A temperamental partner is difficult to handle. And a partner who

was good in some period of business, may lack larger vision, and be a liability in years to

come.

Again, a business has to project a professionally managed face on all fronts – sales,

marketing, finance, operations, technology, people et al. The sharing of these roles

amongst the top 3-5 managers/ partners may be done whichsoever way. However, this

entails possession of divergent competencies in this top A-team.

Similar nature friends may lack this spread of competencies. They may all be too decent,

or too rough. Dissimilarities decide strength of a team.

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