All Money Is Not Created Equal

Introduction

Venture capital (VC) is often seen as the Holy Grail for founders with a big idea for their company. Having a great idea for a business is the start – but it isn't enough. You need capital to bring your idea to fruition. The quest for money to keep a dream – and a business – alive can be as consuming and stressful as the search for the technological breakthrough or market niche that will make a business viable and valuable. As you follow your dream, raising money is like walking a tightrope: one wrong step can be fatal.

Money, like everything else of value, comes at a price. For founders, the price often ends up being too high. In my 30 years of helping companies get the money they need to grow, I've seen too many really smart, hardworking entrepreneurs end up with too little to show for their blood, toil, tears, and sweat. Multiple rounds of equity investment from venture capitalists (VCs) can leave them with ownership stakes diluted to the point where they end up owning just a small fraction of the company they founded.

Reduced ownership stakes mean less profit for founders as well as for early-stage employees who trade low salaries for the promise of small equity stakes. It also means less control – less say in how a company is run, and less voice in its future (which could be an IPO, a sale to a strategic buyer, a merger, an acquisition of another company, or shutting down).

In my experience, the loss of control is often what disappoints and frustrates founders ...