We’ve started recommending private investments in Breakthrough Tech Profits, and not only are they a way to make 10 to 15 times your original investment, they come with perks. These are non-financial bonuses granted simply for investing. This can be wonderful. It can also be perplexing for those accustomed to a perk-free stock market.

Try selling shares of Amazon for $500 and two Kindles. Not going to happen. There isn’t even a venue to make that offer, and if there were, no stock market participant would take it.

But invest $50 privately in BrewDog, a popular British brewer with a growing U.S. business, and you’ll receive a 5% lifetime discount in all the company’s bars, a 20% discount on its website and free tours of its U.S. breweries. All on top of any return you make on your investment.

Nice Side Effects

Perks have always been part of private investing. They stem from the transaction’s nature. In public stock markets, you are trading ownership with another outside investor, effectively making a side bet on a company. In private investing, you are buying an ownership stake directly from the company. This is a fundamentally different act, and it brings with it different outcomes.

For one, when we invest privately, we create meaningful side effects that benefit society at large, not just us and the company. The most wondrous side effect is contributing to economic growth. Your investment dollars flow into the company, where they are spent on new employees, equipment and product to sell. The better you invest, the more effectively you personally create jobs, boost spending and expand the economy.

But we’ll talk about saving the economy another day. Today I want to talk about the other kind of perk: the deal-sweetening, cherry-on-top enticements only private investors get. Investor benefits like BrewDog’s 5% lifetime discount are becoming more common. In fact, two of our active startup investment recommendations have unveiled quite aggressive investor perk packages, ranging from free products to a trip to Asia to sample four culinary experiences.

Think Like an Owner

What should we make of perks like these? How do they alter our investment calculus, and as prospective company owners, do we even like the founders’ decision to offer such perks?

The two are in conflict. As perk recipients, we want the grandest perks imaginable. As company owners and therefore perk givers, we want to give away as little as possible.

Fortunately, the conflict is easily resolved, because the second question is vastly more important than the first. Allowing perks to sway an investment decision is foolish. Startup investments are high-risk, high-return propositions. Any investments must have big potential. The risk is always of total loss. To let a few freebies sway this analysis is to miss the forest for the trees.

How we, as future owners, feel about those perks requires more careful consideration. Just offering perks says something about the company and the people running it, information that is scarce when investing in startups. Our team looks at investor perks from three standpoints to see if they make sense.

Capital. As an investor, I want to receive as large an equity stake in the company as possible for the funds I invest. The better my terms, the more upside. This incentive reverses immediately after I’ve invested. As an owner, I now want the next investor to receive as little equity as possible for each dollar invested. If perks can do that, we’re for them, although this is rarely the case.

More important is how long it takes the company to raise money, a time-consuming process. Because the people in charge of the company must be involved, a typical funding round can distract the CEO and top lieutenants from operating the business for months at a time. Recent studies, including one by crowdfunding.io, show that equity crowdfunding rounds that offer perks raise 143% more, on average, than those that don’t. That means closing the round and getting the C-suite back to work sooner. For this reason, we’re typically in favor of perks.

Product. Companies offer free or discounted product only when they are head-over-heels excited to get it in the hands of their greatest critics—investors. Product-based perks prove the company has a functioning supply chain. In other words, the right product offer can tell us something we might otherwise have only learned after an on-site visit.

This doesn’t make sense for business-to-business products, such as enterprise software, or high-priced or bulky items like solar panels. It may make sense for services, but we glean less information. Access to 10 hours of virtual assistant help tells me less about the company’s stage of progress than manufacturing and shipping a smart vent, which is what one of our private equity recommendations, Keen Home, is doing.

Marketing. For the right company, investor perks can be effective marketing. Investors in private companies are positioned to become that company’s greatest evangelists. They became investors because they believed in the company and have a vested interest in its success. Providing these investors with perks they can share with their peers can, for the right business, be like dousing the flames of fanhood with kerosene.

There is one caveat. Encouraging your greatest fans to spread the good word is one thing. Attempting to convert your financing source into a revenue source (that is, turn investors into customers) is another. This is not healthy.

Our Active Recommendations

Keen Home and Traveling Spoon, our two recommendations peddling perks, stack up strongly against this framework.

Keen Home’s inclusion of its new smart filter along with its smart vent tells us the former is ready for primetime. I’m also happy to see that Keen offers recurring replenishment of products, a sign the team is implementing its plan to go down that path. Traveling Spoon’s tiers of discounts reflect its confidence that investors will love the service and, crucially for a business such as this, share their experience with likeminded consumers.

Neither of these perks is financially burdensome to each company; both products have healthy gross margins. Each company is likely to close its funding round and direct its executives’ attention back to building the company  sooner as a result of offering clear, tangible, well-considered investor perks.

Our recommendation on each company remains the same:

Keen Home: Reserve shares (space is limited). When the round opens, make use of your reservation to invest. Reserve here.

Traveling Spoon: Invest today. Traveling Spoon’s funding round is open and filling quickly; less than $140,000 remains. If you want in, act right away. Invest here.

Alex Pape, Huckleberry Capital Management LLC, manages investment funds for clients and reserves the right to invest in Keen Home and Traveling Spoon.