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Why do early stage investors and accelerators make founders sign clauses which forbid them from having outside work?

When given an early stage investment a founder has to either use that money to pay for their life or invest it in their product.  Making people devote themselves full time to an early idea means they need to spend the investment on salaries when it is usually way to early to do that.

I have heard angel investors in shock at a burn rate for a company that ran out of money out after 4 months, but the investment was only 50K and they were made to sign contracts that said they had to work exclusivly on the start up.  The investors were mad, but then it seemed like they thought the founders were idiots for paying themselves salaries.

What gives?

  • OP- I am looking for a link online, I have seen this twice myself. Once from an accelerator and once from an angel. One of them actually had a restriction for working on anything else for 3 years!

    Reply

    • I think investors want to know you’re committed to the idea. For VC’s their money should tide you over while you build the idea. For accelerators that give you money, they are mainly looking for young founders with little financial commitments (ie. who can live on ramen and pizza) – or founders who have some savings who don’t mind using them up.

      Lets face it. When you’re bootstrapping yourself, you have the luxury to do what you want. When you take an investor’s money, they want you to be working on the startup 100% of the time regardless of how much money they gave you.

      If you don’t like the clause, you don’t have to accept the money.

      Reply

  • Investors want to know that you’re dedicated to the startup (it’s their money on the line), but an investor who wants that and is surprised that you need a salary sounds like an idiot. The investors also sound like idiots because they should know how long their $50K is planned to last. When an investor offers to (help) fund your startup, you need to decide if they are someone you want to work with. You need to build a sustainable startup and your investors are supposed to help vet your business plan to make it sustainable and makes their investment worthwhile.

    Just don’t get involved with idiot investors.

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