Why people seek investments if that means surrendering the control?
I've been reading people talking about giving away 51% of the company in exchange for money and considering it normal.
I perhaps miss something but what is the point of creating a startup company if you give away the control of it? Then the investors can throw you out if you don't please them any longer. In fact, I've seen this happening, 10 years of hard work on your venture and then you're on the street with nothing but a sad memory of what you had and lost.
What's the point of getting investments under such conditions? Isn't it turning effectively back into "work for hire" that people are seeking to flee away from when they're considering their own venture?
3 Answers
Because 51% of nothing much is a lot less than 49% of something great.
Because after accepting even 1 dollar of investor money you work for the investor(s).
Because 51% does not grant you dictitorial or absolute control.
Because you don't deliver results you should be thrown out.
Because sometime the money you need to grow requires the sale of more than 50% of the equity based on iniitil valuation.
Because businesses are not personal pet projects without accountability.
Because getting thrown out with nothing is a reflection of far more issues that selling 51%a of the equity.
Because sometimes being part of something great is better than conttroling something mediocre.
There are lots of reasons.
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"businesses are not personal pet projects without accountability" - really? Why is that? – Fobo 12 years ago
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I don't think that web sites do qualify as businesses. An automaker, pharmaceutical company, an airline are businesses. Web sites are just funny thing, toys really. Where does "accountability" fit in here? – Fobo 12 years ago
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@Fobo I am not sure where your comment about websites not qualifying as business quite fits in -- but any organization that sells products and services to customers is a business. May of those organizations use websites as the delivery mechanism for the delivery of that service. It is not a "toy" -- it is a fundamental component of their business. – Joseph Barisonzi 12 years ago
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@Fobo How does accountability fit in? Business are accountable to the state when they choose to receive the benefits afforded through the legal incorporation process. They are accountable both legally and ethically to customers who choose to purchase their products. Business have accountability for the impact of the products -- in some industries like pharmaceutical this is clearly of more importance then the business of a phone application. Business have accountability to their vendors and suppliers. – Joseph Barisonzi 12 years ago
How valuable are you to your company? Are you only valuable if there is no way to get rid of you? I won't say that some investors aren't vultures but many (if not most) don't want the role that you have. They need someone putting in the sweat, the interest, and the intensity. If you are that person, you have nothing to worry about giving away a controlling interest.
You can always put in the statutes that for a decision at least 60% of the stock owners have to agree or something like that.
To give you an example I'm from Mexico, here lives Carlos Slim Helu who according to many is the richest businessman on earth and he controlled Telmex (Mexican Telephones) with only 5 % of the stock just by using it wisely
