When you start a company, you want to take charge of it. You want to control your destiny and not be beholden to anyone else. One reason why many become entrepreneurs is that they prefer to avoid being told what to do.
But business sometimes goes differently than the owners or founders have planned, and your startup may need more capital than you have on hand. At this point, many owners face a choice. They may sell their company to a new owner who will take over management of the business or give up some control by taking on investors with whom they must negotiate terms. If you want to retain ownership of your startup, you may choose the latter. However, taking this option can be tricky, and you may lose ownership of your startup entirely.
This article explains how you can avoid losing control over your startup.
Retaining Ownership Of Your Startup
If you want to retain ownership of your startup, a few strategies can help you do so. These options include the following:
- Choose Non-Dilutive Funding
First, you need to understand what non-dilutive funding is. Non dilutive funding is seed funding that doesn’t entail any dilution of your ownership stake. It could come from different sources, such as friends and family, loans, donations or grants from government entities, tax credits, and crowdfunding.
The key here is to raise enough capital to build your business without giving up any equity. If you can do this, you can use the money to fund your startup and prove its value. Of course, if you have a product or service that people want to pay for, it becomes much easier to raise these funds.
For example, if you have a software product that helps businesses improve their operations, they would likely be willing to pay for it. And suppose you can demonstrate that your product drives results. In that case, you can use these results as proof of concept and attract these funding sources to your business since it has growth potential.
- Bootstrap Your Startup With Your Own Money
Bootstrapping is a popular method of funding a startup; it involves using only your own money for the business without taking on any outside investors. If you want to retain ownership of your business, this is one option that can help you do so. However, it may be challenging because it requires substantial work and sacrifice to keep your business running.
When you fund your business with your own money, you’re less likely to find yourself in a situation where you have to make decisions based on the needs of investors. Instead, you’re more likely to focus on the long-term growth of your business and its potential for success. However, the main disadvantage of self-funding is that your resources limit you.
For instance, this can be a significant issue if you need more money to start or grow your business. You may need help to hire employees or purchase needed equipment and supplies. In addition, if you fund your business with personal funds and it fails, you could lose everything.
- Avoid Share Transfer Among Founders
One of the founders’ most significant mistakes was transferring their shares to others without proper legal protection. You can avoid this situation in many cases by having a founder agreement before any claims are transferred. This agreement should outline the terms and conditions under which those shares may be transferred to third parties. It includes what happens if one of the founders leaves or is fired from the company.
When founders or shareholders transfer shares without proper legal protection, the remaining shareholders are often forced to purchase those shares. That’s because they would want to try as much as possible to retain control of the company and keep it from falling into the hands of someone who may not be interested in seeing it succeed. However, this can be very costly and strain the company’s finances, which may compromise its ability to grow.
For instance, if the shareholders decide to buy the shares purchased by an outside investor, they may have to take out a loan to cover the cost of buying those shares. It can significantly burden a company’s financial health if they’re already in a tight spot and need more cash flow from its operations.
- Use Advisors To Your Benefit
Another way to keep a company private and retain ownership is to use advisors. It means hiring professionals who have experience in the industry and can provide valuable input into how the business should be run. Advisors are not shareholders and do not have any legal rights in making decisions about the company. However, they can help decide on reliable investors, negotiate contracts with other companies, and more.
For example, a CEO may want to retain their small business owner but still have outside people advising them on important decisions. It can be helpful for the business, as it will not rely solely on the CEO’s opinion. Instead, they can employ one or two advisors with different backgrounds and experiences that can help your business succeed.
One central essence of creating a business is to own full ownership. However, there are many scenarios where a business owner needs to find external sources of capital. It could be for expansion or to keep the company afloat during hard times. In these cases, you must be aware of your options and ensure you do not lose control over your company.