So you’re ready to finally start taking your startup to the next level. Maybe you’ve already tested your new product and service ideas, seen some early success, or put together a solid business plan. Now, the final missing piece is securing the funding you need to scale your company further.
But what’s the best way to achieve this? You could start meeting with banking institutions or even prepare a strategy for pitching new investors. However, if you’re not careful, you can quickly put your business into a decent amount of early debt, or start giving up valuable equity and control over the company.
So how do you move forward with securing funding while still being able to strike a deal that lets you stay in charge of things? Here are some important strategies you should follow:
Clearly Define Your “Must-Haves”
Before you start exploring funding opportunities, you first need to have a good grasp on what your must-haves are. These are the conditions that are absolute deal-breakers if they come up during negotiations.
Some of your must-haves could be being able to have full control over the company’s core direction or the type of staff you want to have employed. Regardless of what they are, consider all of these elements well before negotiations start so you steer the conversations in the right way.
Explore Different Funding Structures Beyond Traditional Equity
There are a variety of different funding structures you can explore outside of the traditional equity share format. For example, you could explore convertible notes or SAFEs (Simple Agreements for Future Equity), which are more flexible arrangements early on than handing over equity right away.
If you have the right bookkeeping services in place, you could also explore a standard debt financing solution. With a disciplined budgeting approach, this could be a much better alternative than having to hand out company shares and dividends.
Negotiate Protective Provisions in Your Investment Agreement
While you may have word-of-mouth agreements in place, your actual investment agreements are where it matters to negotiate the terms that make the most sense for your business. You want to ensure you have protective provisions, a “safety net” in place to ensure you maintain leading control if and when major decisions for the business need to be made.
Some of these larger decisions might include deciding if and when it makes sense to sell the business or a certain amount of assets, or bring on new investors. Before you go down this path, it’s always a smart investment to get legal representation that can help to draft these agreements so they’re legally binding and you’re not missing any critical details.
Maintain Strong Operational Control
All investment deals are different. While certain investors may prefer to operate strictly as a silent partner focused purely on seeing a return on their investment over certain periods of time, others may be looking for a much more active role with the business. Regardless, this is where having a clear agreement in place regarding your operational control is important.
It can be a balancing act when securing additional funding sources and being the one who calls the shots in the business. This is why it’s important to have frank conversations with your investors one what each party’s assumption of the relationship is. You want to make sure you’re choosing partners who are in alignment with your management strategy moving forward and are willing to take a step back as needed.
Don’t Be Afraid to Walk Away From a Bad Deal
One of the hardest lessons to learn as an entrepreneur is knowing when to walk away from a deal. It’s never easy – anytime someone wants to fund your business, it can be tempting to ignore red flags or a partnership that’s just not a good fit.
However, it’s critical that you never take the first deal that comes your way without considering all its pros and cons. Trust your gut instinct and don’t sacrifice your vision for a quick surge of capital.
Make the Right Funding Choices for Your Business
To make the right funding choices for your business, you need to have a clear vision for your business and only choose partnerships that will help you see it through. By following the guidelines discussed, you’ll make sure you’re able to grow your business successfully while still maintaining full control over its direction.
Blog Received on Mail By Michael Bollinger
Michael Bollinger, a Lexington, Kentucky-based entrepreneur, has left a lasting mark on the tech and software landscape. As the founder of LegFi and File990, Michael launched PayHOA.com in 2018 after Togetherwork acquired his first two ventures.
PayHOA is an affordable community management software for homeowner associations that streamlines payments, communication, and vendor management. Beyond his entrepreneurial pursuits, Michael finds fulfillment as a devoted husband and a loving father to his three children.
