Before it comes to giving away equity, every successful business starts with a good idea and the people brave enough to try and bring it to life.
For businesses looking to scale quickly, funding will be a consideration at some point, and they’re likely to go through several rounds – pre-seed, seed, Series A, B, C, D before going public or agreeing a merger or acquisition.
Investment capital allows businesses to hire new people, expand into new locations, and do all the things necessary to drive momentum.
Of course, at each stage of equity funding, the founders who had the initial vision and drive will finding themselves giving away equity, and gaining new business partners along the way.
Many fear that they not only dilute their equity in this process, but also their initial vision for the company.
There’s no getting around the fact that ambitious entrepreneurs need money to grow. But giving away equity doesn’t have to mean losing your voice. Entrepreneurs are often the epitome of the companies they create: a strong presence and staying true to what you initially set out to create is often a key component of continued success.
Here are some top tips on how entrepreneurs can maintain their voice when giving away equity as they go through funding rounds.
Have a plan
Startups are especially vulnerable in the early stages of their journey. Founders often set out with a clear desire and vision, but every meeting, conversation or technological advance can lead them down a path further away from their original objectives.
So, have a plan, not just for the business, but also around your exit before you start engaging VCs into conversations.
VCs will be drawn to founders who have a clear view of what they need to reach their goals, whatever they are. Snapchat and Deliveroo, for example, are still loss-making despite impressive turnover and growth figures. Yet, because they are both still focused on growth, not profitability, and have been very clear about this when communicating their plans with investors, they have received the backing they need.
So what is your plan, what is your endgame and how many investment rounds do you expect to need? One word of caution though, there will be times when it’s necessary to pivot the business so you always need to retain a level of flexibility.
Get your investors to “buy in”
Getting investment is not just about the business. If entrepreneurs want to keep their vision, they must keep in mind that choosing a VC is a bit like choosing a future spouse, even if a bit shorter term!
Your VC will be your partner for the next three and a half years or more, so having good chemistry and sharing a vision are paramount when giving away equity.
The investors you pick need to believe in you, your business and be willing to support your journey with all its ups and downs. Quite like a marriage, that doesn’t mean that the relationship will always be rosy. Investors won’t always agree with you, but they are there to challenge and push you out of your comfort zone to turn you into a better entrepreneur to whom sound decision-making becomes second nature.
If they bought into your vision from the beginning, you can trust that you’re always working towards the same goal.
Define your non-negotiables
There will be things you’re willing to compromise on, and things that you’re not. These may change as you learn and grow, so it is important to identify the latter before giving away equity each round. You can then choose partners that won’t force you to do something you don’t believe in.
A word to the wise though – it’s easy to obsess over things that ultimately don’t really matter because of an emotional attachment. Be strict with yourself and make sure you only focus on the things that are fundamental to business success.
It can be hard to make that distinction in the moment, so ask yourself: What will have the most impact on the end goal? Will accepting certain compromises get you there quicker? And will you still be proud of the outcome if you make said compromises?
Remember that a relationship with an investor is likely to last a good few years, so pick your battles and focus on the things that matter most to you.
Don’t let fear get in the way
Investors don’t just bring money, they bring a host of experience, connections and much more. So, it’s important to pick the right ones, ideally investors who have experience in your industry sector. When you find them, make sure you don’t let fear of losing control keep you from taking advantage of what they must offer.
Being an entrepreneur can be a lonely place and it’s vital to have a support network around you for blowing off steam and asking for advice. Once a deal is closed, your investor could be your best sounding board and is there to advise on what to do, rather than what not to do.
Maintaining your voice when giving away equity can be a tricky balance, but finding the right investors and staying true to what you set out to achieve are key.
Eyal Malinger is investment director at growth capital investor Beringea