Does startup lose control if it sells its equity

Saurabh Kamble Interested in building team, product and Community

February 8th, 2020

Hey guys ,

Most of the people leave their bosses and their close minded approach of not doing things because of fixed revenue targets and not explorer new ways.

So most of people go the startup way and try to solve the problem of the world and create new or clone startup but then they require to maintain a rapid growth projection which ends up in selling equity to investors.

Then to take up the invested money they are often involved in business strategy and take controller of the company which takes up the boss role in the company

Has any one gone through this ??

Any feedback ??

Joseph Flahiff On-Demand CMOs & COOs For High Growth Companies / Looking for Implementer

February 8th, 2020

The quick answer is yes.

The long answer is maybe.

As a seller, you are looking to raise capital for your business so you sell some shares and people give you money.

But they only buy if they are receiving something that they feel will return them more than they invested. that's the whole point. They may be buying for dividends along the way, cash distributions of profits. They may be buying in hopes that you will eventually be purchased by a bigger company and then their shares will shoot up in value. Whatever the case they want to get more out of the deal than they put in.

So, you will feel the pressure, real or perceived, to do what is best, not only for yourself and the business but for the shareholders. Sometimes shareholders want you to make short term decisions that will result in increased dividends but are long term bad ideas for the business. Or the opposite, they might want you to make some long term play that is not good for the cash flow of the company.

You will also feel the pressure to not take big risks for the sake of the investors. I am not saying this is right but be ready for it.

Paul Garcia marketing exec & business advisor

February 18th, 2020

@Joseph is right, the answer is maybe. Remember that control and equity don't have to be the same thing. Someone with a small amount of equity could bargain to have a lot of control, or vice versa. Even if a CEO was voted out by the board, it doesn't mean the CEO lost their equity, but they would have lost control. A controlling interest doesn't have to be 51% equity.

The strongest control is when you borrow no money and take on no investors. If you can plan your business to grow without outside funds, you probably have a more stable foundation than any that has money to throw at problems. Remember that the balance between time, money, and quality leave businesses with only two at a time. You want to move faster, you spend more money or lower quality, and so on.

The vast majority of businesses will never have outside investors.

I completely disagree that the motivation for most people to start a business is rebellion. It's never as simple as you're painting the situation to be.