In this Ask Evan video, Evan Carmichael answers a viewer’s question about how to structure financing for a new business without giving up equity or hiring a lawyer. He outlines the three most common fundraising approaches—equity financing, straight loans, and hybrid instruments such as convertible loans or revenue/profit‑sharing arrangements. He recommends profit‑sharing over revenue‑sharing to protect cash flow, and stresses the importance of selecting investors who bring strategic value (connections, customers, media exposure) beyond capital. Evan advises that even a small equity stake can align investors with the founder’s long‑term interests, but cautions that any financing structure should be reviewed by a lawyer to avoid messy shareholder agreements that can hinder future fundraising. He explains how clear, lawyer‑drafted terms can reduce legal fees, make the founder look professional, and keep the company attractive to later investors. The video ends with a call to action for viewers to like, comment, and ask further questions.
Chapters
Hi, I'm Evan Carmichael. Welcome to another edition of Ask Evan. Today we're gonna answer a question from a newsletter reader, Jay, who's trying to raise money for his business and wanted some advice on how to structure it. So it's a long email, so I'll just kind of summarize it. He has a new idea, he has investors lined up, and they're waiting for him to get back to them with a proposal of, you know, what to do. He doesn't wanna give up equity and he doesn't wanna hire a lawyer to structure everything. I wanted my advice on what to do. So thanks for the question, Jay. I think it's a challenge a lot of entrepreneurs go through is how to structure deals to fund their business. The 3 most common ways, the first is to give up equity. So you give a percentage of your business for the cash injection. And sounds like that's not what you wanna do, so that's fine. The second common way is just a straight loan, so they give you X amount of dollars and you agree to pay it back over a period of time. And then the third most common way is to have some kind of hybrid, so they have a loan where they're making a certain amount of money on an ongoing basis, but it's convertible into shares. So again, you're giving up shares at some point in time. Some other companies will do a percentage of of sales or percentage of the profit. It's always better if you can to do it on, on the profit side of things, just because if you're doing top line, you could end up paying off your investors and then not having any money left for yourself at the end of the day. So that's not going to help an ongoing sustainable business. There's a million ways to slice it. You have to think what's in your own best interest. When you're looking at these investors, are they people who you want to have on side with you for a long period of time? If you see them as just giving you money, then then you probably don't want them to be a part of your equity and ownership structure. So a loan would be better, or some kind of profit sharing, which you have some kind of clause to be able to buy them out at a predetermined price. That's always a great way to kind of get some money at the start without giving up too much of the farm and also being stuck with bad investors. But ideally, you can try to find people who can also help you out longer term and not just be a source of capital, but can be a source of connections and customers and help you find partners and get you into the media, and they start thinking about your business as a way for them to help, you know, contribute and not just give you money. And in that sense, it may be worth going out and giving up a piece of the business on the equity side, even if it's a small piece, just to make sure that they're, you know, always having your best interest in mind. So those are the 3 most common ways. If you want to do that kind of revenue share, Like you talked about in your email, I would try to do it on the profit sharing side instead of the revenue so that you still are, you know, making sure you're making profit for your business. I would probably though talk to a lawyer. It's dangerous to structure these kinds of things without having a lawyer help you go through the process. The more you know what you want to do, so hopefully this video helps give you some ideas, the closer you get to what you want to do, the less time you have to spend with a lawyer. If you go to a lawyer and say, here's exactly how I want to structure it, can you help me do it? You won't pay as many legal fees as I'm not quite sure what I want to do, can you help me? Then, you know, the billable hours start to add up. But I definitely talk to a lawyer. It also makes you look more professional. A lot of the companies that we helped finance when I was in the venture capital business had really, really messy shareholder agreements, and it made it really difficult to be able to raise additional capital because they didn't do it properly the first time. So if you see this as something that's going to be bigger down the line, be able to go out and get more investors, you're going to make a lot of money with, it makes sense to be able to do it right from the start so that when future investors are interested, they see that it's kind of been done properly and they're not going to waste time fixing old mistakes. So hopefully that helps. If you guys like the video, please give it a thumbs up. It makes me know I want to do more of these videos for you guys. And if you have a question about raising capital or a comment on this video or another question about your own business, feel free to leave them in the comments below. I always read those and try to respond to as many as I can. So thank you, and we'll see you on the next episode.
