It’s one of an entrepreneur’s worst nightmares: You get the funding that’s going to propel you to the big time from venture capital or another source, but you wind up giving up so much of your company in return that you lose control of it.
So how can you maintain control of your startup while still getting the financing you need?
If your business idea has low startup costs, bootstrapping – or funding it yourself – is the best way to go, but you can wind up with depleted savings before the idea has a chance to work out.
But if your idea for a startup is more ambitious than you can fund yourself, you’re going to need some outside help. This is where venture capitalists frequently come in.
If you turn to VC funding, start by investigating the VC firm as diligently as they investigate you. Talk to colleagues to get the inside scoop, particularly if you can talk to someone at a company that’s been funded by the same firm, and investigate the firm’s partners too. Check their reputations and watch how they conduct business.
And you’re definitely going to want legal help on this one. Find an attorney who can help you negotiate terms that are as favorable as possible – and who can let you know exactly what a deal does before you sign.
Adapted from Funding and Controlling Your Startup’s Destiny at Small Business Computing.