• December 2019
    M T W T F S S
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As an entrepreneur, what are the best strategies for retaining the maximum equity in a startup as you receive funding?

Well, my first suggestion to you is to make sure that you understand the different types of funding and the mechanisms that they come in. For example, although both a convertible note and priced rounds involve equity, priced rounds have prices that are agreed upon in advance. With a convertible note, if your stock prices drop, your investors could end up with a larger amount of equity than what you’d hoped.

To maintain maximum influence (as you put it), you must think long and hard about your limits. If you really want to maximize equity, you’ll want to look for ways to invest in your own business without calling on traditional investors. You didn’t mention if you work a second job (or a full-time job) outside of your business. If so, put as much of your own money toward your business as you can. Consider getting a business or personal loan from a financial institution. Yes, you’ll have to pay it back, but you won’t lose your control of the business.

Don’t raise money if you don’t need it…and don’t take more than you actually need. Think about the concept of a credit line. If you were offering credit and after reviewing the credit app of a client, you determined that they could afford payments of a $2,000 credit line, would you suggest that they take a $200,000 credit line from you? No, because you know this would be a risk to your income. The payments would be too much and the client may eventually default. Then you’d have a new problem to deal with. The general concept fits with fundraising. Do not take more than you need and that you can “afford” (or that you are comfortable) giving up in terms of ownership and control. Just because someone makes it available to you doesn’t mean that you should take it.

As far as negotiating, before you start raising funds, learn as much as you can about your industry, fundraising, and negotiations. You can also take another step to protect your best interest: have an experienced attorney review any agreement and get advice about your specific situation.

If you’d like to get legal advice about which fundraising methods would work best for your specific needs, consider LawTrades. We are a legal marketplace that provides affordable legal advice to businesses just like yours. We provide a service known as LawTrades Micro that may be useful for you. With it, you’re able to ask an attorney a specific question. For a flat rate (usually $25), you’ll get the answer within 48 hours.