How much investor control should there be for your company?

When it comes to starting and running a business, you're going to need capital, or money to not only get your business up and running, but keeping it in operation as well.

However, getting the needed capital can prove difficult for some businesses just starting up. Not everyone has the money needed to fund a business, and loans for small businesses can be difficult to obtain.

That is why for some businesses, equity financing is the way to go. With equity financing, the business owner gives up a portion of the control of the company to investors. In return, the investors provide the business with the needed capital to start and operate their business. Unlike traditional financing, such as a bank loan, the borrower does not have to repay the money given.

But this does not mean you're getting free money. Instead, you are relinquishing a portion of control of your own company. If those who are investing in your business don't like the way you are running your company, you stand the chance of losing control to them. On the flip side, you could keep full control if they agree with the business decisions you make.

The money comes from either angel investors, private individuals who use their own money to fund businesses, or venture capitalists, firms that use other money to support and grow a business.

How much investor control should there be for your company?
The investor's main goal in funding your company will be to make a large gain. In order to do this, they will see a company with excellent potential for success, give them the money needed to start it, and then closely monitor its growth and performance. The investor's partial ownership comes in the form of As a result they get a say in how your company is run.

Chances are, you started a business because you wanted independence and wanted to operate your own company exactly the way you wanted. Using equity financing could jeopardize this if you are not careful, as investors can come in and move your company in the direction they feel is best for making it profitable.

However, this is not always a bad thing. Let's say you give control of your business to your investors, leaving you with 10% of a company that, under their control, has grown to over a million dollars. Depending on how you look at it, this could be better than owning all of a company worth $100,000, as the investors have a better chance of making it grow.

How can you keep control of your business?
If you are hoping for equity financing but are worried about losing all control of the business you have worked hard to create, consider the following suggestions:
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• Establish yourself as much as possible. Before looking for equity financing, if you can prove yourself as a winning business leader beforehand, your investors will be more likely to leave control of the company to you.


• - Practice voting control. Investors will get stock in your company via voting or nonvoting.If you want to utilize a nonvoting option, consider offering incentives to the stock owners.

If feel that your company has potential for tremendous growth and you don't mind relinquishing some of the ownership, consider equity financing.