I’m surprised how often I get asked the question in the title, or variations of it, from people in startups. And you will hear discussions in which experts recommend ways to get investors who take less equity and demand less control. That seems short-sighted or worse. I posted here years ago dumb investors is a dumb idea. But this question keeps coming up.
If you’re working on a startup, understand the tradeoffs. Don’t try to find investors who don’t take ownership. Asking that question is like asking “how can I get somebody to spend their money without giving them anything?”
Ask yourself why somebody, anybody, would spend their money to build your business instead of to build their own, buy a house, car, or go on vacation? What do they get out of that? They aren’t the government. They can spend their money any way they like. So what – besides a share in ownership – can you give them for their money?
“Giving away” is the wrong way to say it. You share, in return for money; and, if you do it right, help, contacts, and collaboration (if you find the right investors). It’s like a marriage.
How much ownership your investors get is a matter of agreeing on how much your business is worth, and then dividing how much money you get into that. For example, if you can convince your investors that your business is worth $1 million, and they spend $500K, then yes, in that case, you gave up half. And it’s not that easy, either. If investors aren’t convinced you have a good team, good product-market fit, scalability, defensibility, and a reasonable chance at exit, then don’t worry about what you share with them, because they won’t want any part of it, for any amount of shared ownership.
If you worry about giving up ownership, that’s valid, but instead of complaining about investors, look up Bootstrapping here on this blog. Most startups bootstrap because few have what it takes to attract investors. It’s harder, but if you make it, then you own it all yourself. Or, if you have a startup that needs more money than you have, and offers a good business opportunity for that money, then think of investors as partners and find investors you can work with, and respect. Or bootstrap.
This question came up again on Quora over the weekend. If you’d like some alternative answers, here’s the link: How can I get funding for my startup without forfeiting half my ownership in the business?
(Image: Flickr cc, by snail_race)