How to Raise Capital Without Losing Control of Your Business

For a lot of business owners, capital is a necessary part of growth, but there’s a fine line between raising money to put into your business and handing over complete control. You need to find a way to fund taking your business to the next level, but without sacrificing your vision, autonomy or ownership.

The Different Ways of Raising Capital

There are a number of ways to raise capital as a business owner, which gives you the chance to find the right solution for your business. In order to find a way to raise capital without losing control of your business, you need to understand the different options available to you.

Savings or Reinvesting  If you’re lucky enough to have your own savings – and you’re in a position to use them – or your profits are high enough, you could invest in the business yourself. This is one of the easiest ways to keep control of your business, whilst also raising capital and having the funds needed to take your business to the next stage. There are no external investors, no strings attached and nothing changes in terms of stakeholders. However, it can limit the speed in which your business can grow and, if you do use your personal savings, there is an element of personal financial risk to consider.

Grants  Depending on the industry that you’re in and the type of business you have, you might be eligible for grants. Grants from the government, nonprofits and other businesses can be a great source of capital, and it doesn’t cost you equity or control. Grants are often competitive, but it’s always an avenue worth exploring.

Debt Financing  When a lot of people think about raising capital, they think about debt financing. It’s a common route, one that’s somewhat of a ‘go to’ for business owners. Taking out a loan, credit from banks or borrowing from alternative lenders allows you to raise money without giving up any equity. As long as you can handle the repayments and interest, you stay in full control of your business and have access to the money needed for growth or innovation.

Equity Financing  Equity financing is another way of raising capital, and this involves selling shares of your business to investors. It can be an effective way of raising significant capital, but potentially at the cost of ownership and control. Finding a balance between selling equity and still retaining control of your business requires a planned, strategic approach.

As you can see, there are various ways to raise money for your business, and it’s important to weigh up your options. You might even decide to use two approaches, especially if you’re hoping to bring in a lot of money. Whatever you choose, always consider what it means for you in terms of how much control and authority you have as the business owner.

How to Raise Capital and Stay in Control

If you do decide to go down the route of selling equity, you need to do it in a way that allows you to stay in control of your business as much as possible. If you’re smart, raising capital doesn’t need to mean losing control and handing power over to anyone else.

Retain Majority Ownership  When you’re raising capital and you want to stay in control of your business, always aim to retain majority ownership. Keep more than 50% of shares, unless there’s a strategic reason for you not to. This means that you maintain decision-making power, and you’re still the person with the most sway.

Use Dual Class Shares  Some business owners issue two classes of shares to raise capital, one with more voting rights. This structure lets you raise funds whilst still keeping control over day-to-day business decisions.

Bring in Aligned Investors If you do decide to bring investors on board, choose people whose vision and goals align with yours. Choose investors who support your long-term vision, and who want the same out of the business. Some investors want fast exits, whereas others are happy to be more patient. Ask the hard questions before committing to anything.

Be Smart When You Negotiate  Valuation, board seats and voting rights all matter when you’re running a business and raising capital. Don’t just look at the amount of money someone wants to invest, and what that could do for your business’ growth. Make sure that you understand the terms, and don’t be afraid to negotiate.

Remember, Business Control Isn’t Just About Equity

It’s tempting to put all of your focus on equity, but business control is about more than where your capital has come from.

Incorporate Early and Correctly  When the time comes, don’t delay incorporating your business. Choose a structure that gives you flexibility and legal protection, making sure that your interests as the founder are protected.

Establish a Strong Operating Agreement  Don’t leave anything to chance, as you don’t want to find yourself in a complicated disagreement further down the line. It’s important to establish a strong operating agreement before committing to anything. This defines voting rights, control mechanisms and founder protections, making sure everyone is on the same page.

Be Clear on Your Vision and Values  When you attract investors who believe in your mission, they’re more likely to be supportive partners, and not obstacles who stand in your way. It’s important to make sure everyone wants the same from the business, so make sure you’re in agreement on what growth and success looks like.

Build a Sustainable, Profitable Business  There’s no knowing what’s around the corner, but having a sustainable, profitable business will help you to weather whatever storm comes your way. The more financially independent you are, the more negotiating power you have.

 

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