Own your value.
It is an exciting time to be a female entrepreneur. We are launching 1,000 new businesses a day – that’s five times the rate of all other businesses – and our companies deliver twice the financial return. The world is at our fingertips and with careful planning we can hold it firmly in both hands by retaining as much equity in our businesses as possible.
Founders are bombarded with information about how to attract capital. Articles, podcasts, and Twitter memes tout everything from how to build the best pitch deck, to VCs interested in women-led companies, to instant loan approvals. The assumption is that in order to be successful, or at least in order to be considered successful, you have to raise as much money as possible. But what if we flip that thinking?
I have founded two fast-growing businesses including my current contact center company SaviLinx, which ranked 28 on the 2017 Inc. List of the 5000 Fastest Growing Private Companies. In my career, I’ve done a lot of things right. I’ve also made my fair share of mistakes, and one of the most valuable lessons I can share is the power of equity. I own the majority of SaviLinx, all while growing from zero to approaching $20MM in our fifth year. There’s nothing wrong with VC, it’s just that there are many options to consider before trading away your equity a piece at a time. Five percent of a company seems small when it’s valued at $1M. It’s another story when you reach $10M or more.
Here are four steps you can take to help retain ownership in your business:
#1 Know Your Numbers
When I founded SaviLinx, I looked hard at my business plan and financials to see how much investment I needed to grow and bring the company to profitability. Profitability was my most important metric because it is the key to getting more favorable financing terms from traditional banks. Every decision I make is through this lens.
[su_pullquote align=”right”]I have emptied out my 401k on multiple occasions.[/su_pullquote]
#2 Measure Growth Against Risk
Not all growth is good. Find the guideposts that will help you make these ongoing judgment calls. For us, if an action or opportunity will jeopardize our ability to keep our promises to existing customers, it’s off the table. We also measure the amount of return we can generate from an investment, and how long it will take. If it impacts our ability to maintain profitability, we decline, no matter how exciting an opportunity might seem.
#3 Find Money
Before you qualify for loans or credit, you need to find the most efficient and cost-effective sources of capital. The obvious first choice is friends and family. If you don’t feel comfortable asking them to invest in you, review your business plan. If you believe in it, then you are not asking for a favor, you are offering those closest to you an opportunity to share in your success.
Review the local, state, and federal financing programs available in your area. In Maine, I accessed loans from several redevelopment agencies and our state finance authority. Scour these resources – they are built to help companies like yours, so use them to your advantage. For federal programs, start with the Small Business Administration, which offers a wealth of resources.
Some angel investors offer lending options. Yes, they tend to come with a high interest rate price tag, but it might be all you need to get you through a tough spot without giving up equity.
[su_pullquote align=”right”]If you believe in it, then you are not asking for a favor, you are offering those closest to you an opportunity to share in your success.[/su_pullquote]
If you’re already making money, invoice financing can fill a gap until you are able to secure a traditional line of credit with a bank. Again, this is a pricey option and it is not designed for long-term use, but it can tide you over for short periods.
Don’t forget your personal resources. No one wants to take out a second mortgage or tap into their retirement, but if it means hanging on to equity, it can be worth it. I have emptied out my 401k on multiple occasions. In addition to getting the cash I needed, I have been able to demonstrate that I am an all-in founder. If I believe in myself, others will too.
Be the CEO you want to be.
Some days, it feels like everyone around you has ideas on how you should be running your company. Advisors and friends alike have input on what you should sell, how you should treat employees and, yes, how you should fund your company. Listen to your instincts. There is nothing wrong with seeking seed, venture, or other capital, but if retaining equity and control is important, listen to yourself. Your short-term creative financing can prevent equity dilution in the long term.