The way you finance your business will affect your control over it. Raising equity is easier if you seek control through performance rather than stock.
To keep 100 percent control over your business:
- Sell no stock to anyone else;
- Borrow no money;
- Hire no key employees whose departure would hurt the business;
- Employ no resources (such as technology, components and trade names) whose use is restricted.
So if you intend to build a substantial business, the question becomes how to finance it to balance control, flexibility and growth. If you sell equity worth less than half your business, and the investors impose no covenants, you retain shareholder control. If you sell any equity to investors or venture capitalists, they will demand strategic control, giving them the right to hold seats on the board of directors, veto changes in strategic direction and set executive compensation.
Value Your Business Accurately
Investors won't even consider a potential investment if the valuation is considered extremely high. When valuing of their business, many entrepreneurs let their emotions take over. Investors look at the current stage of the business and its prospects for creating value and keep emotions out of the investment decision.
Act as though somebody else owns your business and ask whether you would invest your capital into the enterprise. VR intermediaries help entrepreneur's value businesses or introduce them to independent valuation companies. Understanding what your present business is worth or an accurate value of your considered acquisition is key to obtaining any form of investment or financing.