I have sunk my entire savings into a great idea and it's launching soon, but I think it could be more successful with more capital for marketing and other services. I'm considering taking on investors, but I don't know if that will mean giving up too much control.
Repz for Charity
Raising capital from investors is not about giving up control, but rather about adding value to your company and making success more likely. So start by determining what type of investor or partner would complement what you are capable of doing yourself.
The most valuable investor for a start-up company is someone who knows the industry and understands the problem you are solving. He or she knows the sales processes in this type of business and has contacts that can help you launch and gain market share. If you have come across such individuals in evaluating your idea and developing your business strategy, tell them that you are considering taking on investors and see if they are interested or are able to refer you to someone who may be. This type of referral is the best way to source investors, rather than making cold calls or online applications to investment funds.
It is very difficult and time-consuming for a pre-revenue company to raise equity or debt capital, so consider whether you could make deals with vendors or service providers to reduce their fees during your launch phase, or offer a small amount of equity. Then, after you have customers and growing revenue, it should be a little easier to raise capital.
Unless you need to raise a large amount of capital, you should not have to give up control of your company, certainly not during the early stages. Some professional investors or groups will require a seat on your board of directors and probably some preferential treatment if the company is acquired or dissolved. Be prepared to receive advice from investors who acquire even a small share of your company.
Before offering any equity to investors or others, retain an attorney familiar with investment term sheets and agreements. This is a legal process filled with potential dangers.
About the author
Michael Moore is the director of the William C. Norris Institute at the University of St. Thomas Opus College of Business.