Don’t Give Away your Greatest Black Box!
At Fundabl, we are troubled by the ease with which founders aresometimes prepared to give away equity ownership in their business. Particularlygiving away controlling stakes of their business in the company’s early stages.
It seems that generally, the conventional wisdom is to gostraight to raise equity as soon as possible. We think this prevailingbelief comes about for two main reasons…
- Generally, founders and business owners aren’tnecessarily experienced and seasoned capital allocators and aren’t familiarwith the various financing options available to them when they launch theircompanies. For a founder, equity is often the simplest and easiest capital sourceto understand. Investment comes in and a portion of the business changes handsbased on the current business valuation. No interest payments or hidden goodiesto try and understand. That’s it.
- Also, there has been a trend in the market whereraising equity funds is seen as a key performance indicator to having asuccessful business. The social status around a business valuation and theexcitement when your capital raise hits the newswires creates that feeling ofconfidence and conviction that the business MUST be on the track to unicornstatus having just enticed external investors onto the journey. Surely?
Founders should think carefully before giving away equity,even at high valuations, because it is more expensive than the narrativesuggests. When you sell equity, the asset that is being exchanged is your blackbox – a box that contains potentially vast upside andoptionality in the future. If you think about your black box as an undiscoveredfortune, you’d want to guard it appropriately.
A founders most valuable possession is the equity that theyhaven’t yet sold. The longer one can hold only to its equity ownership, thegreater the potential upside. Particularly in the early days, equity investmentcomes at a huge future cost. Our blog, Why Does it Always Have to be aChoice Between Debt and Equity provides a practical example to illustratethe extent to which future upside can be diminished for selling equity early.
Selling your black box can also have the effect of dampeningbusiness owners’ long term incentive to grow the business and the ability toentice future talent while the company is growing..
We believe that equity funding is often essential on abusiness journey and definitely has its time and place, but we also feel that the‘all-equity’ funding route for most businesses is not optimal.
Fundabl is excited to offer our capital solution to foundersand business owners as part of the recent shift towards making other forms offast, flexible and non-dilutive funding available in the market. Equity raises sella claim on the black box of your valuable and growing business. ThroughFundabl, we prefer to purchase your revenue itself. We provide fast capitalwith certainty on timing and the amount you can get from us. No need for operationallyintensive, time consuming and incredibly de-focusing exercises to get fundingto bridge you to your next milestone.
We want to help your business extend cash runway, ‘buy time’to grow revenues and take less dilution in your future raises at the cost of fixeddiscount to your future revenue.
So, before you go down the ‘all-equity’ fundingroute, ask yourself, why are you giving away your greatest asset, your blackbox? Is there a more optimal way to construct the capital stack? Can Fundabl beyour solution? We’re here to help and give you a no-obligation indication ofhow much you can access through us.
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