Education Center For Business Owners

Instead of selling equity

I don’t want to sell part of my company to equity investors who only contribute cash.

Raising money from third-party equity investors can be one of the most expensive ways to finance your business. They make a one-time investment for part ownership of your company, and receive a percentage of your profits (usually with no end date).

This means that no matter how long you’re running the business, you’ll constantly be paying equity investors, unlike a debt investment that ends at some point.

In order to get the equity back, you’d have to come up with additional funds to buy them out.

Or, if you sell your company, you’ll need to split the proceeds with equity investors. Equity investors may provide guidance, mentorship and connections to help you get the business off the ground, or they may contribute start-up capital. However, you may have other options to finance your business.

If you want to avoid equity dilution and having to manage the demands of equity investors, debt financing would be worth looking into. The main thing to keep in mind is that it has to make sense for your business. Most technology and consumer product goods (CPG) companies that require long development timelines typically choose to take on equity investors because repayments are not required within a specific timeline.

Next: Instead of big banks or merchant cash advance lenders