When an investor is handed a large pile of corporate equity, they effectively become a co-owner of that business. In turn, they’ll be entitled to a certain degree of say over any future company decisions. Investors also bring the added pressure of meeting stringent new cash flow expectations that may or may not have been amongst your original priorities.
More than a few major corporations have withered and died thanks to internal battles between investors and company founders. So, before you agree to hand over a large chunk of equity in your company, have a think about your long-term plans. If accepting new funding means working with an investor that may hinder you a few years down the road, say no.
That doesn’t mean handing out some form of equity early on is a bad thing. Most investors won’t hop on board without it. But if you give away too much early on in the game, a lack of available equity might cause your company to struggle in attracting future investment.
Don’t Be Greedy
Finally, when in doubt, air on the side of caution. You’ve got to remember that attracting investment isn’t an endgame. You can’t afford to allow funding ambitions to dominate your developing corporate identity.
In the short term, it always sounds appealing to jump at the first big offer you get from an angel investor. Yet in doing so, you might be agreeing to far more than you had originally bargained for.
The bottom line is this: don’t be greedy. Instead of wasting valuable time developing a memorable elevator pitch, get out there and test the waters. If you can prove that your million dollar idea is more than just a great idea – and that you know how to manage success without a lot of money – you won’t have to worry about chasing down investors. They’ll come to you.
This article has been edited and condensed.
Nash Riggins is an American business journalist based in central Scotland. He writes for The Huffington Post, World Finance, EuropeanCEO and The New Economy. For more from Nash, follow his blog at: www.nashriggins.com. Connect with @nashriggins on Twitter.
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