Ryan Daniel Moran explains why taking equity partners doesn't always hurt founders. Yes, you own less, but investors bring capital for hiring and marketing, plus their relationships and expertise. They also let you cash out early, so you can take bigger risks.
Lance Mechanic asks, does bringing on an equity partner dilute your portions in potential profits?
Given two equal scenarios, a business being a billion dollar company with investors or a billion dollar company without investors, obviously you want to keep as much of the pie that you have built as possible. The question just becomes, does bringing on investors create a bigger pie than you could do on your own or not? I'm currently in the process of acquiring a business, and while we didn't need to raise money, we decided to court investors on this because of the relationships that it would create. And by doing so, we had to give up equity in the company that we were acquiring. The benefit was it freed up our own business capital to be able to put that into the business so we can hire people, so that we can release new products, so that we can be more aggressive with advertising. And as that capital is freed up, that's gonna grow the business bigger. And than if we didn't have that capital cause it was tied up in the acquisition cost. The other thing is some of the investors that we're partnering with add value to the company. So we all know that there's that one book, that one person, that one opportunity that has shown itself that as a result has created a huge impact in your life and business. Sometimes investors can be those people, not just because of the capital that they bring to the table, but because of the other relationships they bring, the other, the expertise that they bring, the connections that they have, the experience of doing this before, the insight that they have, the ideas that they bring, the client base that they bring, the email list they bring, the blog that they run. So it is not just a matter of do you dilute your equity or not? It's a simple value exchange. Does the 10 points or the 20 points that you give up in exchange for that money allow you to run a bigger business or not? There's a deal that I'm going through right now where there's money being taken off the table, which makes the founders of the company happy because they get to cash in a little bit. And as a result of them cashing in, they're more likely to be risk tolerant in growing the business. Meaning a lot of entrepreneurs are risk tolerant when they start a business, meaning they're okay to taking the risk to grow a business, but as soon as it gets profitable, we go into protection mode and we stop taking risks, which can slow down the growth of the business. So if you take on an investor which allows you to take money off the table, breathe a little bit easier, put money into your pocket and now say, okay, I'm playing with house money now, so I'm gonna take some risks in this business. Calculated risks, of course, that can create a net positive in the business by you being more aggressive in growing the business. So I think a lot of small businesses, especially solo entrepreneurs, are a little bit too protective of the way that they start a business because they're thinking about potential rather than what impacts the business right now. Sometimes that hundred grand or that 50 grand that you raise in a business simply gives you the breathing room to be able to operate it like it should be run, which allows you to grow the type of business that it could be. All things equal, of course, you are more profitable, meaning your own personal gain from the business if you keep 100% of the business. But in the event that an investor adds more value to the collective pie of the business, then it can be a very wise decision. Right for everybody? Absolutely not. Right. In the correct strategic positioning, like the things that we try to create in the tribe, and when you've got a specific relationship where somebody adds more than just the money they're putting in, then bringing on investment partners can be a very wise business decision.
