Giving away equity (how much?)
Business Startup Resources

Giving away equity (how much?)

Agreeing to invest in a business is relatively easy. Agreeing to accept an angel investment is not as easy as feels like giving away a part of yourself.

Entrepreneurs should think long and hard about external investment. The moment you accept just £1 of external money, you have a legal and moral obligation to run your business in the best interests of all shareholders undermining your control. I don’t typically invest in a company where the management team have more than 70% of a company. I have found in the past that the business ‘owner’ does not recognise that no matter how small another investor share, they have the same duty of care and attention to them as they do to themselves.

So this is a short post – but I hope an important one. If you accept external investment please remember that:

  1. You cannot use the company as a personal bank account
  2. Every penny spent has to be to further the interests of the business
  3. You have to produce meaningful financial information on a regular basis
  4. You have legal obligations to always act in the best interests of shareholders. Especially if someone offers to buy the business!
  5. The shareholders have the right to ask you lots of questions and expect answers!
  6. You need to have at least one non-executive director on the board and recognise what that means

Having said all of this, most businesses find that external angel investors can add real value to a business and help it grow rapidly.

Let me ask you, would you rather own 100% of a corner shop or 1% of Tesco?

If your answer is the corner shop – because you want control and the lifestyle – external investment is not for you!