By Alan Olsen
Have you ever watched the popular ABC program Shark Tank? This “reality” show allows entrepreneurs and business owners to pitch their business ideas or products to five extremely wealthy investors who are successful entrepreneurs in their own right. The panel of “shark” investors even includes Dallas Mavericks’ owner, Mark Cuban. The budding entrepreneurs attempt to convince the “sharks” to invest their own money into the entrepreneurs’ companies in exchange for an equity share of the budding company, or product. On most occasions the sharks ask for more equity than the entrepreneur is offering. Some of these negotiations lead to what would appear to be excruciating decisions by the entrepreneur. In fact, they often walk away from offers because they don’t want to give up such a high percentage.
Give and Take
They need the capital to help start, grow or save their company, but at the same time they don’t want to give up too much ownership. Much like any business owner, they don’t want to lose control of what they have worked so hard to create and build. That is a dilemma that many entrepreneurs face at some point in their existence. All startup companies want to be successful and they often need the financial backing of venture capital, but not at the cost of losing majority ownership in their company. I discussed this issue with Monty Kersten, the VP of Strategy and Business Development at International Network Services and the former President & CEO of VitalSigns. I specifically asked Money what steps should you take to stay in control of your company for as long as possible?
It Starts With Angel Financing
Monty told me that this is one of his favorite topics and he shared his precise plan. Essentially he gave me a step-by-step outline of how one can hold onto ownership of his or her company and still receive the necessary financial backing from venture capitalists. He said many people have a misunderstanding that you always lose control if you give up equity in your company. He said that’s simply not true. “The best approach to use is for an entrepreneur to use angel financing at the beginning if you can.” You then surround that person with a very seasoned and experienced board. The board members also need to be knowledgeable, helpful and loyal.
You Can Keep Control of Your Company
Monty said then when the venture capitalists do come looking to invest you don’t have to sell 50 percent of your company to them. In fact, he said you could sell much less. He said the reason you can do this is because you have built enough value with your angel financing so you don’t have give them half your company. You can sell more like 20 percent. Monty explained to me that that means you’ve got the board in control and even though the venture capitalists come aboard “you still have your colleagues in place that are loyal to you and you still control the issued and outstanding shares if you’ve done it right.