Skin in the game

There’s something missing from the bailout discussion regarding the Big Three automobile makers. It’s so obvious, I must’ve missed it.

The first time I went out looking for venture capital, I thought I had all the bases covered. I did my research in painstaking detailed and crafted a clever plan. So, I wasn’t all that surprised when I had some nibbles.

One appeared especially interested. We appeared to agree on all the parameters. I wasn’t dismayed that they were taking a big chunk of ownership. That was expected.

I thought the deal was done, but they had one last thing to discuss with me. Skin in the game. Come again?

They would put up most of the capital, but they wanted me to put my assets on the line in personal guarantees. House, cars, etc. Wait a minute. They’re supposed to be the money people. I’m sweat equity.

True, but they wanted my skin in the game for two reasons. The first was motivation. If my assets were on the line, they would sleep well knowing that I wasn’t slacking off. Sure, the potential big payoff for me was motivation, but nothing like my neck on the line.

The other reason was a test in my belief in the concept. If I wasn’t confident in success, knowing more about the business than they did, why should they feel comfortable putting up the money? If I felt good enough about the odds to risk my capital, so did they.

As I did more deals down the line, I would find this to be a standard clause. So, where are the personal guarantees of the auto maker executives? If they think they can turn it around and pay the money back, let’s see their confidence. I’m against pumping tax money into their businesses, just so they can enjoy a few more years of seven-figure salaries. Let’s see some skin in the game and then we’ll talk.