It doesn't matter how much equity we give up or how we structure the deal. The moment we owe someone money, the dynamics change. People don't tell us that when we raise money, but if we've ever raised before, it becomes painfully obvious.

The Golden Rule: She with the Gold, Rules

Anyone who holds the purse strings to our startup essentially runs our startup. If I own 5% of your company but 100% of the capital, I run the company. I may not own the company, but if I control the blood flow of the company, it lives or dies by my choice.

The vast majority of capital raises place all of the flow of capital and the control provisions that come with that capital, in the hands of the investor. Once that's signed, it's nearly impossible to undo. Those controls are what having a boss is all about. Being the Founder, or the CEO is only as valuable as what that title controls.

It's about Power, not Equity

The equity we give up isn't just a number — it's a power exchange. We give up the power to make unilateral decisions — forever. Often we'll rationalize that by saying things like, "Well, it probably makes more sense to have an extra pair of veteran eyes on these key decisions."

And that's true — when we mostly agree with those decisions.

But what about when that decision is to fire us? Are we excited about the extra voice then? What if the decision is that we won't sell even though it's great for us, but not for investors? Are we excited about giving up the power then?

Raising capital is about hiring our boss

Make no mistake, Founder friends, when we raise capital we are hiring our boss. And most of the time, it's not only a necessary evil, but it’s also probably the smart choice for the future of the company. Let's not delude ourselves into thinking that we can have our cake and eat it, too.

Every dollar raised comes with strings attached.

In Case You Missed It

Will Investors Want to Run My Company? If I take on investors, will they push me aside and run the company?

What Should I Never Say to an Investor? I'm going to be raising capital for the first time — I know what I want to tell investors, but what should I avoid saying altogether?

Can I Have a Boss Again? (podcast) As a Founder, what happens when we're forced into going back to reporting to someone else now that we've tasted the freedom of Founderhood?

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Michael Schmidt

Well, I do not fully agree. The relationship startup-founder-investor has to do a lot with role, expectation and respect. If an investor feels the need to interfere in business decisions, then she/he should have a good reason for it. Mainly an investor invests into the team and trusts the leading people - that is why she/he invested. If success and return of invest do not come as planned, there is more to worry about but to lose or share power. If a founder wants do do his/her own stuff without anyone around to provide advise, to point out issues or to be critical, then you should not start a business at all. Others will depend on you and it is not a one-wo/man-show. Never has been and never will be. Become artist, author or potus if you really think so. But if you get invested, check the contract you sign. Make sure you don't sell cheap and get to know, whom you let become part of your company. An elevator- pitch is not the kind of date that shows whom you are talking to.

•Reply•3 years ago

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