Should I get a cut for introducing you?
Referrals, networks, net worths, and when is a favour more than a favour - lessons from investors, connectors, and trial-and-error.
“I met a guy who badly needed $1m funding for his business. He was running on fumes, and it was an early-stage, niche business too. I have a contact in my network who invests in that sector. But before making the intro, I put in place a referral agreement that I’d get 10% of the funding, $100k. Should I have done that?“
This was a not-at-all hypothetical scenario a high net worth investor recently ran past me as a sort of ethical conundrum. The crux of the investor’s argument was that he’d spent decades building up a network of sufficient leverage that he could deal-make, and without the $900k, the business was done. He added that the startup founder had apparently been delighted with the deal ($900k is better than nothing).
Let’s step back
I, like many of you (I’m guessing), never set out to ‘build a network.’ But it seems to happen. In the past few days, that has involved:
Introducing a potential Dev team to an entrepreneur with a large platform-building project.
Connecting a behavioural scientist to an organisation prepping startups for government funding.
Linking up a long-time insurance mover and shaker to a biochar startup that is looking at carbon credits insurance as part of the funding model.
Introducing a background check DD provider to a client.
Introducing an impact investor in Caribbean food systems to a builder of West African real estate (as both help US-based diaspora invest in Africa and the Caribbean).
Connecting a founder of a successful accelerator with sovereign wealth funds in MENA around a sustainable Florida real estate deal.
Joining the dots between a number of commodity sellers and buyers spanning four countries.
Fair exchange vs extraction
How do you decide who to maintain in your network and how/when to monetise? This past year, I’ve needed to develop some rules. The number of connections has increased such that I don’t always have time for people who matter. I would love to tell you that this resulted in some Tim Ferriss-style system to ‘optimise.’ It didn’t. I rely on instinct and the ‘fool me once, shame on you; fool me twice, shame on me’ maxim. If I feel there’s deception or an ongoing imbalance (often called extractive) - i.e., you generally want things from me but seldom listen or reciprocate - then I’ve had the awkward conversations or paused/ended the relationship. It works both ways. If I’ve leaned on someone too much, I will try and compensate for that.
Then there are the looser connections, but ones that, for some odd reason, often seem more high-stakes. In the list above, connections 1-3 are all people or causes (regenerative agriculture in case 3) that I care about. So, no ask, no ‘fair exchange.’
Cases 4 and 5 are an easy intro, and I’m keen to see how both develop, as they were nice people. So it’s a low-stakes intro and an experiment in trust (if it goes awry, I’ll learn and recalibrate instinct or rules).
In case 6, I really like the founder, but we will also talk turkey next week, as the deal could be valuable and the connections matter.
Ironically, case 7 is the biggest potential value (monetarily) - albeit with the lowest probability of success - and the parties are transactional and wary of each other. It’s not a space I plan to inhabit, but if the introductions yield results, then yes, I should get some of that for the effort in pulling together numerous intros, messages, calls, and connections. But that’s actually the wrong thinking - I caught myself as I typed. Even if it was no effort - just setting up a WhatsApp or Signal group and introducing buyer to seller with a “have at it” intro - that is putting together two people who want to do deals but didn’t know each other; i.e., “a valuable introduction.”
But how?
How do you monetise an introduction? I’m learning. The first step seems to be a “Non-Circumvention, Non-Disclosure and Confidentiality Agreement.” Then, depending on what’s coming, it’s about revenue share, referral fees, commissions, equity, carry, etc.
There are pros and cons to each, and real care is advisable, especially around term, volume, rights, sliding rates, conflicts of interest, etc. For example, if you refer one job that’s different to referring a client who goes on to give the introducee 10 jobs.
So what?
Many of you have great networks. If we want the good people to get the money, then we need to be more intentional about supporting each other, and more clinical about extraction. For my part, you have my contact details, so if you know someone who I might be able to help (directly or through connections), let me know. If it looks like that’s financially meaningful, we can get over the intense discomfort of “talking terms.”
For too long, ‘doing deals’ has often been associated with the corrupt, criminal, or creepy. Terms like ‘backroom deals’, ‘behind the scenes’, ‘sweetheart agreements’, ‘side deals’, and ‘under-the-table’ all speak to the sordid aspect of deal-making. But, as the investor with his very matter-of-fact $100k commission has taught me: if you’re giving me something of huge value, why shouldn’t you benefit from that?
It’s time the good people started doing more good deals, even if that causes some butt-clenching cringe and profound imposter syndrome.
Agree or not?