Sometimes the right capital partner is another human, not a bank. Done right, an investor partnership accelerates the deal. Done wrong, you sell half your business to someone you'll resent in two years.
Common structures.
- Equity partner (passive): investor puts in cash for a % of the business; you operate. Investor gets a preferred return (often 6–10% annual on capital) plus a share of profits beyond.
- Equity partner (active): investor brings cash AND an operating role. More like a co-founder. Be very careful about role definition, "we'll figure it out as we go" is a relationship killer.
- Debt with kicker: investor lends you money at a below-market rate plus a small equity share or warrant. Cheaper than full equity if you can pay off the debt.
Term-sheet must-haves.
- Capital amount, instrument (equity, debt, convertible)
- Distributions: when, how much, in what order
- Decision rights: what the investor controls vs. you control
- Exit path: what happens at sale, can either party force a buyout, valuation method
- Default scenarios: what happens if you miss debt payments or the business underperforms
The conversation no one wants to have. Money relationships break friendships. Have the hard conversations *before* signing: "What if I want to keep running this for 20 years and you want to exit in 5? What if I get sick? What if the route loses 30% of revenue in year one?" Get answers to all of these in writing.
Securities law. Selling equity to investors triggers securities regulations. For private deals with one or two accredited investors, an exemption usually applies (Rule 506(b) most commonly), but you need a securities lawyer drafting the documents, not the operating LLC's general counsel.