How To Raise Capital Without Giving Up Equity

What's up guys? In today's video, we are going to talk about how to scale your business without giving away equity. Okay, there's a lot we're going to talk about. You know, the different ways that you can raise money for a startup, pros and cons of different financing options, and ultimately what I think you should do. So let's get into it. So there are tons of different ways that you can get financing as a startup. Now first up, ideally, right, like You wanna bootstrap and self-fund, like that's a lot of people's dreams. You don't have to give away ownership of your business, you don't have to take on a lot of debt, you're just profitable from the get-go and you can just reinvest your profits and grow. Now there's pros and cons, right? So a lot in today's world and age, there's a lot of, you know, if you have a new idea with the internet and, you know, info technology, like it's very likely that competitors are gonna come into your space very quickly. So people wanna grow fast today. Yeah. And they wanna grab that market share. That's where venture capital investors and angel investors can come in, infuse your early stage business with a ton of cash and be that first to market. There's pros and cons with that. So obviously when you're taking on an angel investor or a VC firm, you're forfeiting, I don't know, 20% of your equity to start with, depending on how many fundraising rounds you have. That equity is worth a lot. Right? So some people don't like to give that away. So it's really hard for early-stage businesses to go out and get like a loan from the bank. Why? Because you don't have collateral, right? You just have kind of this idea. You have this, you know, this vision. That's great. You may be generating revenue. And even if you're profitable, you don't have any, you know, underlying assets that the bank can underwrite. You know, if you're a real estate company, then yeah. But most businesses have a hard time attaining financing. Venture debt is where basically a venture fund or there's a lot of early-stage startup lenders that focus on offering these short-term loans to startups. Most of the time though, it's not just straight-up venture debt. There's usually these, it's called a convertible note, where there are warrants to convert Like usually, I don't know, quarter of the loan size to equity, you know, within the next like 5 or 10 years. Most of the time people are still wanting to get that equity in your company, right? That's where the most upside is. But, you know, venture debt can be a really good option for those that need it. It's more advantageous for the lender, but obviously if you're a business starving for capital, it can be a great way to go. But yeah, I mean, those are— that's pretty much it. I mean, private equity is reserved for more stable companies that have more track records. Now you can always go to like venture studios. They're gonna do the same thing though, or incubators. There's a lot of options, but they almost all result in you giving away a piece of your company. Alternatively, there's another way that we haven't really talked about yet, and that is a fund. So obviously this is a channel about starting funds. How that works, if you're not familiar, is you can start a separate entity, like a separate business. You can raise money in that business from investors, and then you can invest that capital into whatever means you see necessary, right? The method of a fund is turning $1 into $2, right? Is by taking capital, investing it, and getting a return. That's a business, right? Like businesses are, it's the nature of taking money, spending it on a good or services, or providing a good or service, and getting a return back to your investors. So if you can do that, I mean, obviously it doesn't work for all businesses, but if you can take Money, invest it into your goods or services, provide your investors a return, that's a fund. Okay, that's great. So start a fund to go out and you don't have to give away any equity of that original company. So yeah, obviously you're not gonna make as much profit from, you know, doing it this way. You're gonna give a lot of those profits to the investors, but it still can be very lucrative. So here's the thing that a lot of people don't understand. If you go watch some of our other videos, if you're not familiar with funds, I don't wanna explain it all here. But you can then take your fund and your business can be a client of that fund. So, you know, let's take real— so you probably, when you're thinking of funds, if you're new to the fund space, you're thinking of like, oh, real estate or hedge funds and private equity. Yes. But there's also these, you know, private equity is the nature of taking businesses and building them and making profit and selling them. Like, let's take a real estate fund, for example, though. Like if I go start build a multifamily complex, there's gonna be services that the fund is going to have to pay for to improve the value of that property. I'm gonna have to pay for insurance. I'm gonna have to pay for a property manager. I'm gonna have to pay for subcontractors to come in and make that real estate better, right? But if you own an insurance company and if you own a subcontracting company And you own a property management company, your fund can you know employ basically can be a service provider of that fund. And as long as you disclose, right? You're like probably thinking well that's a lot of conflict of interest there. It's the three rules of funds are disclosure, disclosure, disclosure, right? So you just disclose all these relationships, and as long as you can verify. That the service goods or services that these companies are providing to the funds are at or below market value. If it's below market value, it's actually in the interest of your investors, right? You're actually saving them money. And obviously this business can still be profitable. You know, it's, it's a great way to, you know, you're basically starting a separate business to raise a bunch of money while keeping equity in your other business. And this business that you're trying to raise money for is a client of the fund. All right, now it's obviously a little complicated, but, uh, it's beautiful, right? It's so synergistic, and there are so many ways that you can do this. It's like building an empire of investments. It takes a lot of work. I'm not going to say it's easy, but it is a great way to go if you really don't want to give up that equity in your business. I know I kind of went through a lot there. Um, if you're not familiar with funds, Go and watch some of our other videos. But just to recap, you have a business, you want to raise money, you don't want to give away equity. That's okay. Start a fund, invest your dollars into that fund, promise them a return on profits. Right? Well, you actually you can't promise or guarantee anything, but it's I mean that's what alternative investments are, right? It's it's where you're taking money and you're investing them in alternatives, alternative ways to make money. You know, you return profit to your investors, and then you actually make profit too. It's a profitable business. But you know, as a way. To support your business, there's a service that you can provide, whatever that is. Like, so I— an example of another client, right? I have a client who, you know, found out that he could build oil rigs. They returned a ton of money. And he's like, I've got this business of oil rigs. It's fantastic. But I just don't want to give away a lot of equity. So he started a fund to go out and purchase these oil rigs. And then after You know, they're stabilized. He buys them back because he generates profit on the fund side. He'll buy them back later. I've got a guy out of Brazil, shipping containers that he can basically profit on. There are Amazon businesses where you can use this fund model for. There are so many businesses that you can that complement a fund in ways that just people haven't even realized. Kind of a confusing topic, but or intense topic, but. There are ways to raise money, you know, without giving away equity. So hope you guys enjoyed the video. Talk to you later.