While Gwinn espouses a hands-on approach to investing, he knows it doesn't work in every situation. "If you're autocratic or egocentric in nature," he says, "you don't want the kind of investor who is going to challenge your thinking on sensitive and critical areas."
In addition, Gwinn says that entrepreneurs who can afford the price of outside assistance can also forego seeking out value-added investors. "You can get all the expertise, guidance and counsel you need from accountants, attorneys, marketing and financing consultants," says Gwinn.
There's an important distinction between advice from shareholders and consultants, however. "The consultant is often passive, providing advice, which if followed, should generate a successful result. The value-added investor, on the other hand, will provide advice but has a vested interest in its successful implementation."
If all this sounds a little too touchy-feely, there is a more concrete reason for considering what type of financial partner you really want. In general, hands-on, value-added investors require more equity in a company than strictly passive investors. Why? The value-added investor is taking the same financial risk as the passive investor but with the additional investment of his or her time. This added investment generally translates into owning a bigger piece of the company.
This was true in Powell's situation. Gwinn and his co-investors offered a package that would give them about 18 percent of the company. The passive investor's deal would cost Powell just 12 percent of his equity. Powell feels that 6 percent difference may someday soon be worth $6 million. Knowing this, he is reluctant to give it up unless absolutely necessary.
What's swaying Powell in the value-added direction, however, is the other great elixir of wealth: time. "I can grow the business," he says. "But if at the end of three years we want to sell it, the company will not get the highest possible price unless it's packaged properly right from the beginning, which is what I hope a value-added investor would help us do." In other words, getting the highest possible price on the back end might be worth some sacrifice on the front end.
Though at press time Powell was undecided about which offer he would take, he believes going with hands-on investors might pay big dividends down the road. "All schooling requires tuition," he says. "Mine might be 6 percent. But with the knowledge I acquire, I'll make it up 10 times over my lifetime."