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Pros and Cons to bringing on Investors

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Carter Jones

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Please send over any existing threads that relate to this topic if there is any out there. I'm considering bringing on an investor for my business and want to see the pros and cons there are for doing so. We are in need of certain equipment to continue growing, and I wouldn't like to blow half our savings and or deal with bank loans. Any insight/lessons here would be greatly appreciated.

Thanks,

Carter Jones
 
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loop101

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Felix Dennis said to never ever give up a single share of your company. You have to listen to a guy that spent $100M on hookers and blow, and still died with $400M in the bank.
 

Bearcorp

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An investor brings money to the table but also, depending on the deal reached now has a say in what you're doing, and gets a slice of your pie. You lose some control, but gain money and likely experience. Banks want their repayments with interest but leave you alone. Savings can be saved up again. All avenues have pros and cons, you need to weigh them all up and see which path works best for you and your business.
 

SD Entrepreneur

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PROS: money, additional resources & knowledge, ability to grow quicker (assuming the right partner)

CONS: giving up equity and control (if you're giving equity), dealing with and answering to another person/partner, differences of opinions

I would not give up equity, rather structure their capital as an equipment loan if possible. This way you continue to run your business how you'd like without additional input.

This is, of course, if you're certain investing in the equipment will provide a good ROI and you'll be able to pay back that loan.
 
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Carter Jones

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PROS: money, additional resources & knowledge, ability to grow quicker (assuming the right partner)

CONS: giving up equity and control (if you're giving equity), dealing with and answering to another person/partner, differences of opinions

I would not give up equity, rather structure their capital as an equipment loan if possible. This way you continue to run your business how you'd like without additional input.

This is, of course, if you're certain investing in the equipment will provide a good ROI and you'll be able to pay back that loan.

I like this response, thank you. Never thought about doing an equipment loan.
 

Carter Jones

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An investor brings money to the table but also, depending on the deal reached now has a say in what you're doing, and gets a slice of your pie. You lose some control, but gain money and likely experience. Banks want their repayments with interest but leave you alone. Savings can be saved up again. All avenues have pros and cons, you need to weigh them all up and see which path works best for you and your business.

I don't want to just take the easy way out and get fast cash, if I bring someone on does that mean they absolutely need to be in the industry I'm in or at least have a service based trade they have been successful at?
 

Bearcorp

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I don't want to just take the easy way out and get fast cash, if I bring someone on does that mean they absolutely need to be in the industry I'm in or at least have a service based trade they have been successful at?

I would say, without knowing the finer details that some industry knowledge would be very helpful, unless you know that this investor has a track record of working with and in a variety of industries, and has some runs on the board in terms of growing and expanding businesses.
But if your looking for help with growth along with the financial input, then industry knowledge could be just as important as they money they bring. If you have cash and/or can get it from the bank but need someone for a specific role, why not keep the equity you own in the business and just employ them as a senior manager or specific role?
 
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Carter Jones

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Access to cash is generally the worst reason to give up equity in your company. There are almost always going to be better and less expensive ways to finance growth if it's just about the money.

Could you give examples of better or less expensive ways? I could genuinely use some knowledge on expanding not with just clients, but the speed in which I should grow, how much I should be taking home yearly salary wise, marketing budget. Should I expect an investor to bring that to the table? Or should I just look at other threads and sources to figure this side out?
 

Carter Jones

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I would say, without knowing the finer details that some industry knowledge would be very helpful, unless you know that this investor has a track record of working with and in a variety of industries, and has some runs on the board in terms of growing and expanding businesses.
But if your looking for help with growth along with the financial input, then industry knowledge could be just as important as they money they bring. If you have cash and/or can get it from the bank but need someone for a specific role, why not keep the equity you own in the business and just employ them as a senior manager or specific role?

I've traded labor for knowledge in the past, and it turned out being worth my efforts. This is well put, I should probably just use my savings so it makes me work harder to get it back. How would you go about hiring a senior manager, Indeed.com?
 

ZeroTo100

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Please send over any existing threads that relate to this topic if there is any out there. I'm considering bringing on an investor for my business and want to see the pros and cons there are for doing so. We are in need of certain equipment to continue growing, and I wouldn't like to blow half our savings and or deal with bank loans. Any insight/lessons here would be greatly appreciated.

Thanks,

Carter Jones

Hey Carter, there is a search button...

However; as someone who has been there. I’ve turned down investors but I’ve brought in partners. There’s a big difference in the two and they both can cost you significantly if you choose wrong.
 
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Carter Jones

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Hey Carter, there is a search button...

However; as someone who has been there. I’ve turned down investors but I’ve brought in partners. There’s a big difference in the two and they both can cost you significantly if you choose wrong.

Yeah the search button lead me to threads pertaining to investors that deal with stocks. Didn't have any luck there, but hoped someone knew of a gold thread relating to original post here. But nice I have someone who has a good market share in two cities over. Been interested in seeing if he wants to bring the knowledge over and split charges/risk on a sister company. Very good point you brought up here.
 

Carter Jones

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If you absolutely, positively need outside money, start by considering debt instead of equity. Borrow from a bank, get an SBA loan, get a loan against invoices or inventory, borrow from friends/family, etc. Debt is generally much cheaper (as long as your business is successful) it allows you to retain full control, which is generally more important than a solution to short-term cash flow issues.

The bigger question is whether you absolutely need outside money. First, do you need money at all? Can you continue to scale linearly at this point (use profits to fund growth)? Or is there some business event that is requiring you to scale in a step-function fashion right now?

If you absolutely need to scale quickly, the first choice should be using your own funds. You mention in another response that you have savings you could use -- if you're confident about the likely success of the business and the ability to repay the loan, I would recommend lending your business the money personally.

It's becoming quite clear what needs to be done. I can set up a monthly pay back to myself and just use my personal savings to pay for the equipment I need right away. With said new equipment I will be using new profits to pay back even faster. I'm blessed to have enough residual income to make this happen. Thank you for the insight here @JScott
 

Real Deal Denver

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If you absolutely, positively need outside money, start by considering debt instead of equity. Borrow from a bank, get an SBA loan, get a loan against invoices or inventory, borrow from friends/family, etc. Debt is generally much cheaper (as long as your business is successful) it allows you to retain full control, which is generally more important than a solution to short-term cash flow issues.

The bigger question is whether you absolutely need outside money. First, do you need money at all? Can you continue to scale linearly at this point (use profits to fund growth)? Or is there some business event that is requiring you to scale in a step-function fashion right now?

If you absolutely need to scale quickly, the first choice should be using your own funds. You mention in another response that you have savings you could use -- if you're confident about the likely success of the business and the ability to repay the loan, I would recommend lending your business the money personally.

I have a project I am working on, and would ideally like to raise a million.

I have heavily investigated Kickstarter to do this, and it looks very doable. The main drawback is I will be letting my information/product out for the sharks to feed on. But getting up to speed using a cool mill should launch me into the stratosphere - at least that is the plan.

When the sharks do come, I will offer them a licensing deal - or try to crush them. The issue here is I won't have my patent at that time. So many logistics...

Just thought I'd throw that out there for feedback. With my very limited resources, I don't really have any other viable options.
 
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