Most advisers are paid for their work, not for the outcome years later. That is a perfectly sound model. But it means that once a transaction closes or a project ends, the adviser's interest in the company largely ends with it. When an adviser also invests their own capital alongside the owner, the relationship changes. Their success becomes tied to the long-term success of the company.
This alignment, often called having skin in the game, is one of the defining features of merchant banking. It brings clear benefits, and it raises questions owners should ask.
What changes when an adviser invests
The time horizon lengthens
An adviser who owns part of the company cares about what happens after closing: whether the plan is delivered, whether the team stays, whether the next phase succeeds. Advice tends to focus less on getting a deal done and more on getting the right outcome.
Advice becomes more candid
When an adviser shares the downside, they have reason to be honest about risks, weaknesses and unrealistic plans. They also have reason to say when a transaction is not in the owner's interest, even if that means no immediate work.
Commitment becomes visible
Buyers, lenders and co-investors notice when a partner has invested their own money. It signals conviction that is difficult to convey any other way.
Involvement becomes deeper
An investor-adviser has a stake in execution, not just strategy. They are more likely to roll up their sleeves and help with the work that creates value.
The questions alignment raises
Alignment is not automatic, and combining roles requires care. Owners should understand:
1. In which situations will you invest?
Not every engagement involves investment. Understand the criteria and whether investment is offered, expected or optional.
2. How are potential conflicts handled?
If an adviser is helping you sell part of your company and is also a potential buyer, interests could diverge. Ask how such situations are identified, disclosed and managed. In some cases, it may be appropriate to involve an independent party, for example for valuation.
3. On what terms will you invest?
The terms of any investment should be clear, fair and comparable to what an independent investor would offer. Owners should feel free to test them with their own advisers.
4. What happens if we disagree?
As both adviser and shareholder, the partner will have a formal voice in decisions. Understand governance arrangements and how disagreements would be resolved.
5. What is your horizon?
An investor-adviser with a long horizon is aligned with an owner building for the long term. One who needs a quick exit may not be.
Principles that make the model work
Responsible investor-advisers typically follow principles such as:
- Transparency. Being clear at all times about which role they are playing.
- Disclosure. Making any financial interest explicit.
- Choice. Ensuring the owner can decline investment without affecting the quality of advice.
- Independence where needed. Involving third parties when a conflict cannot otherwise be managed.
- Consistency. Applying the same standards of advice whether or not they invest.
When the model fits best
The investor-adviser model fits particularly well when:
- The owner is building towards a goal over several years
- The company would benefit from capital and hands-on support as well as advice
- The owner values a partner who shares both risk and reward
- Trust and long-term relationship matter more than a one-off transaction
It may fit less well when an owner needs a purely independent opinion on a specific transaction, such as a fairness assessment, where any financial interest would be inappropriate.
A reflection for owners
Consider the people whose advice you value most in your business life. Often they are the ones who had something at stake: a co-founder, a long-term partner, a mentor who invested. Shared risk tends to sharpen judgement and deepen commitment.
How the economics typically differ
Owners sometimes ask whether an investor-adviser is cheaper or more expensive than a traditional adviser. The more useful question is what each relationship is designed to achieve. A traditional engagement is built around a defined piece of work. An investor-adviser relationship is built around the long-term value of the company, with a share of that value as part of the partner's return. Owners should understand clearly how a partner is rewarded in each role and judge whether the arrangement aligns with their goals.
How LXN works with owners
At LXN, we invest our own capital alongside owners we believe in, as minority or majority partners with a long horizon. When we both advise and invest, we are open about our role and interests, and owners are always free to choose advice without investment.
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