Forums: Discussions for entrepreneurs and small business.

I have a question for the group and would appreciate input.

We`ve launched our site and its growing well.  Overheads are minimal so we don`t need a lot of cash.  Having been `burnt` through two startups already (angels and VCs) - I wanted to do startup #3 without outside funding this time around.

But an organization has reached out and offered cash for equity - like I said, we don`t need much cash to survive and could get by without outside funding but their `pitch` is..."you owe it to the concept and the members to raise cash and `take the business to the next level`."

Am I being stupid or selfish by wanting to do it without outside funding? This may seem an odd question but I`ve been mulling it over since these conversations...

Andrew
http://www.AdvisorGarage.com
http://www.AndrewIve.com

 

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Andrew PS - Here's a free report on creating your startup success. Free report

Never pass up a good deal.  But only you will know if it is a good deal. 

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Travis Tschepen
Hibachi Bros. LLC

--My goal in life is to be as good of a person my dog already thinks I am.--

I don`t understand. When I visited the links that you have on your post they both go to start up education, funding, etc. You are in this business--but have to ask this question?

I smell a shameless plug coming on.

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"If you`ve got a frog to swallow, don`t look at it too long. And if you`ve got more than one to swallow, swallow the biggest one first"--Danny Cox

Absolutely not!  I am in this business in so much as the site brings people together.  BUT I feel very jaded about the challenges you sometimes encounter working with some angels and VCs.  We had five angels in company #1 - three were great but two were extremely difficult.  With company #2 - we secured funding from two VCs - one was extremely helpful and mentoring - the other kept dropping in on a weekly basis and constantly flip flopped the strategy as they saw fit. The challenge is you don`t know if you have a good angel or VC until you start working together.

So, should I bite the bullet, suck up my nervousness and take the cash so we can ramp up the websites functionality and exposure or stay the course and let the business grow more naturally (ergo without a cash injection).

This is absolutely not a shamless plug - People can give their feedback without needing to see the site.  Its just my regular signature...

Andrew
http://www.AdvisorGarage.com
http://www.AndrewIve.com

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Andrew PS - Here's a free report on creating your startup success. Free report

If you don`t need the cash infusion, and you believe the company will grow why would you sell a percent of it for a small amount today when you can keep it all to yourself? That makes no sense.

One exchanges equity for cash in order to grow, but if the cash is not needed then the exchange is useless.

We are gaining about ten new members a day.  The question is what additional functionality would add even more value for members and how much does it cost to deliver.  Also our marketing budget is zero so this is all word of mouth growth - cash would allow us to advertise.  Giving up a little equity is not a concern - its having people involved in the decision making which gives me concern...

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Andrew PS - Here's a free report on creating your startup success. Free report

Can you do the deal with a stipulation regarding the decision making processes!?

Sorry if that sounds naive...not familiar with these types of deals...but it seems like an easy wording insert for the contract that would ensure you retain control of the decision making...at least to an extent!?

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Leah Tucker

Thanks!  Yes, I can `control` the equity and therefore be the ultimate decision maker but my understanding is that investors in an LLC becomes `members` and members have rights.  I am yet to find an investor that wants to hand over cash and not have an input.  Should I just put up with this for the sake of getting a cash injection so we can step change the functionality and services provided for customers?

Who would take the cash and who would go it alone and be the master of their own destiny?

Andrew
http://www.AdvisorGarage.com
http://www.AndrewIve.com

 

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Andrew PS - Here's a free report on creating your startup success. Free report

I would go at it alone, and offer different program models to your members. When you focus on the needs of your members, they will grow your marketing cash infusion. With your continuous growth, companies will partner with you on their products. If you are dealing with business people, they have business needs.

Clearly you would need to deal with your "relationship" questions before consumating this deal - but I wouldn`t base my decision about outsdie capital entirely on that point. Before discussing the potential problems with investors - I suggest the following:

Ask yourself if the trade of equity for velocity (faster growth / shorter time) is a good trade. The passage of time adds risk to a new business. There are a number of outside factors that can occur “over time” to impact a fledgling business. (market, technology, competition, etc) These factors can severely limit the potential of the business. If you feel that it is important to get established in the market, quickly – then outside capital may be appropriate.

Once you decide that question, then you can determine how structure the arrangement.

 

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