Q: What is the best way to receive funding to grow my company without losing control of it?
Christina Flach, CEO
Pretty Girl Makeup
A: This is a very common question for entrepreneurs, and the answer is this: You shouldn't have to give up control to raise growth capital. The fundraising process is really about finding the right partner, whether that is a bank or an angel investor or a venture capital firm. And while those investors do want to make money, a good capital partner will be interested in contributing to your success and the success of your company, rather than taking control.
Here are three aspects to think about in this regard as you plan your fundraising:
First, not all investors think alike, so you will want to talk to several to get a feel for similarities and differences and who might be a good fit for you. With angel investors, it is often wise to approach investors with some connection to your industry, as they are more likely to understand your business and be able to add value if they invest. The more people you talk to, the more you will learn, and the better position you will find yourself in when you finally make a deal.
Second, fundraising becomes much more simple when you have your "story" together. The story should go something like this: We have a product that fills a need for a certain customer group, and that group as a whole is big enough to be interesting. We also have customer adoption and retention, we have a plan for growth and a team to execute on that plan, and we understand how all of this adds up to an opportunity for a return on the investment we are seeking. In my experience, entrepreneurs who have this story together often have more leverage with investors than they anticipate (remember that investors would rather invest in a good business than one that simply gives them a high ownership percentage).
Last, and maybe most important, find yourself a good mentor who has been through this process before, one who can help you plan your approach, consider different methods for structuring a deal, anticipate potential pitfalls, etc. Fundraising can be a rocky road with a lot of unknowns, so having someone who can help guide you through the process will be extremely beneficial.
Jay Ebben is an associate professor of entrepreneurship at the University of St. Thomas Opus College of Business.
