| If you are smart, you will form a business entity for | | | | to invest $100,000 for 45 percent of the shares. You |
| your business start up. The question, however, is how | | | | agree since he is your friend and the money can really |
| do you find investors and what do you sell them in | | | | take the business a long way. |
| exchange for critically needed money. | | | | So, what is wrong with this scenario? Well, what |
| For the purposes of this article, let's assume you | | | | happens in a year when the business needs another |
| formed a corporation to start your business. Let's also | | | | $100,000? Are you going to sell more equity? You |
| assume you have friends and families interested in | | | | barely have any! At this point, things start to get ugly. |
| investing. If you don't, there are a lot of questions about | | | | You start making statements about it being your idea |
| selling securities to the general public, so let's avoid that | | | | and doing all the work. Soon, you evolve into the full |
| situation. Regardless, how are you going to raise | | | | blown bitter originator. By giving away equity, you've |
| money so you can carry out your business plans? | | | | lost control of "your" idea and "your" business. Unless |
| The first step most people take to raise money is to | | | | something can be worked out, your dream is dead |
| give away equity. In the case of a corporation, this | | | | and the business will probably be as well. |
| means selling shares to potential investors in exchange | | | | A better option for financing is, well, anything else. |
| for cash. While this is a logical step, it is not the best | | | | Instead of selling equity to friends and family, try to get |
| solution. In fact, it should be the last resort. | | | | them to loan you money. You will be surprised how |
| When you start a business, you consider it to be "my" | | | | many will agree to this. If the business goes well, you |
| company. What many new business people don't | | | | pay them back, retain total control and everyone is |
| understand is that selling shares in a corporation is | | | | happy. If you can't get loans, you can go ahead and |
| diluting ownership. He who owns the shares controls | | | | sell equity. When you do so, however, sell a very small |
| the company. If you sell shares, it is no longer your | | | | amount for as much as you can get. If your buddy |
| company. It is the stockholder's company and there | | | | thinks it is such a great idea, he should be willing to kick |
| are now more than one. | | | | in $100,000 for a small percentage. |
| One of the biggest mistakes made with new | | | | When starting a business, regardless of the type, it is |
| corporations is the dilution of ownership due to a lack | | | | vital that you hold on to your equity. Make them pry it |
| of planning. Let's assume you talk to your buddy about | | | | from your dead hands before you sell it. If you don't, |
| investing in the corporation. He looks at the business | | | | you stand the very real chance of becoming |
| plan and thinks it is a great idea and you really have | | | | disillusioned later on. |
| your act together. In fact, he thinks it is great, he offers | | | | |