What Is The Best Way To Keep Your Equity As You Raise Funding?
I’ll never forget one of our investors saying to me, “There’s a certain percentage ownership you’re going to end up with, and there’s a certain percentage ownership we’re going to end up with.
“The rest of it doesn’t matter.”
The point our investor was trying to make was there a fair outcome for both of us. Most investors and entrepreneurs operate inside this “fair outcome” window.
It’s only when entrepreneur or investor greed upsets the balance that things get screwed up.
Otherwise there are really only two ways that you can maximize your equity:
A. Kick Ass.
Really the only thing you have truly in your control is the performance of your company. And better performance leads to a lot of good things:
- You’ll have more cash if you perform better, and…
- Extending your cash means you’ll need less funding, and…
- Needing less funding means you’ll have more equity in your company, and…
- Your valuation will likely be higher because your company is performing better.
A company that is performing well gives you one other super-huge benefit:
B. Competition amongst investors when you raise your next round of funding.
The only time you have leverage when you are raising money is if you can get two or more potential investors bidding against each other. That’s when market forces take over, and you will be diluted less.
So it really comes down to execution again.
Focus your energy on your company doing a great job. And worry more about investor/company mismatch more than extracting every percentage of equity you can because investor/company mismatch is one of the only things that can kill your company.
For more read: What Are The Five Fatal Mistakes That Will Kill Your Business?