It’s tough in the world of start-ups and you will need a lot of help along the way, not least financially. However, do not forget that the dearest thing to any entrepreneur is to maintain ownership of your own business. As they say, equity is “dear”, so structure your business so your can focus on business and not managing relationships. Here are 6 Killer tips to help you do just that…
Having partner are great, especially when starting out. Someone to share the pain and fear with. But when things go wrong or tough decisions need to be made, you need to be able to execute without lengthy discussions. Having an equal partner or multiple partners on the ground will cripple your ability to do that. Partnerships in the end always struggle with deadlock, so remember try to control as much of the company’s equity as possible so that there are no arguments about who is in control – you.
2. Don’t Rely on Family… please
Don’t do business with friends you want to keep. Falling out over business deals or debt kills friendships. In your quest to raise capital for your new venture, you may be tempted to rely on friends, family, and casual acquaintances. Most people think this is the logical place to start. It’s not. These are people you eat Christmas dinner with. What’s a more valuable asset in the long run – the business or your friendship? That’s a decision you never want to force yourself into having to make.
3. Talk to Professional Investors
Consider what professional investors bring to the table beyond equity – like experience, wise counsel, and connections with other experts. Besides money they are a valuable source of experience.
But you will need capital to grow. So who do you ask? Answer: You will get the money through equity and bank debt. Diluting your share of equity is often unavoidable, so you’ll give some to will probably need the cash to grow or to get out of trouble. Go to the professionals. Professional or institutional investors are too busy doing deals to want to sit next to you at your desk and question your decisions. That’s not their job.
Also, keep in mind that even if you need to give a majority of your shares to private equity investors in the beginning of your business launch, there will be ways to maintain control and claw back your equity as your business improves. As the operating partner, you will always have control over business operations (unless you really screw up), and based on performance, you will be able to earn back more equity as your business grows.
4. Don’t Understate your Needs
When you need more capital, be clear about how much money you need now and, if possible, over the next five years. Be sure to have really gone through the numbers and don’t overegg. It looks good on paper, but those figures may be an illusion. There’s no point in asking for too small an amount and having to go back, cap in hand, to your original investors – that just looks like bad planning. Describe at the outset the maximum you think you will need, with an additional percentage for contingency.
5. Consider Debt as an Option
Never borrow to spend! Borrow to invest! Don’t exclude the idea of getting into debt. Go talk to your bank. Ask if they have a business-growth lending department. Interest payments can be a drain on cash flow especially in the beginning if there is too much debt, but it’s usually better than selling a majority of your shares.
I’m a seasoned start-up entrepreneur and property financier who built built businesses worth over $200 million. Since 1992, I helped start a bank credit department, founded a mortgage company, and built the largest single-branded real estate company across five countries in Central Europe. I also developed a portfolio of shopping centers and hypermarkets in Eastern Europe, constructing over two million square feet of retail space.
Today I am involved in the entrepreneur community, trying to share what I’ve learned and I serve as a mentor for startups.
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