Should I raise money from investors if my goal is not to get acquired?


5

My goal is to build a profitable company that generates revenue for years without selling out to a larger company.

Since most investors are looking for an exit in 4-5 years after investment, should I even consider raising money?

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asked Mar 26 '14 at 14:26
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Ronald Block
60 points
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  • Really good question! – Chrissie Gray 5 years ago

1 Answer


4

If your ultimate goal is to have what they call a lifestyle company, no one is going to want to invest. That being said, you can still have a goal of owning your own company and give your investors an exit in other ways. For example, you could refinance the business once your cash flows are positive for a a few years and borrow money to buy your investors out.

But if the goal is to build a profitable company that generates revenues for years and years -- well, you can do that without investment capital.

Investors are a mixed bag. Don't get investment capital just because it appears as a part of the process. You can make it part of the process, but it isn't a necessary part of the process. Investment capital is great to help you grow faster than could boot-strapping it (high growth periods in your company equate to larger cash needs).

I would encourage you to look at the way you price for your products and services and try going it without the complications of investors. For example, if you were a Software as a Service company, you can bill quarterly, yearly and even 18 months in advance. This has huge ramifications in the out years on your cash stores and can balloon them to a point where you can self fund your entire journey - no investors needed.

And finally, the terms you strike with any investor are largely determined by the current state of your business. If you're killing it, you can expect to have huge leverage in the terms and you may even be able to garner investors who have an economic interest in the company only. If you need capital to pull of your idea, you can expect that the investors will have huge leverage in the terms and may want more than just an economic interest. For example, they may want voting privileges on selling the company to an acquirer one day and you can expect them to actively pursue that path for their exit.

Over the years as you pull more money form them (assuming you're not putting your own money in to protect your dilution), their vote becomes larger and they may be able to force you to sell at a time when you don't want to.

My recommendation is go get yourself 30 customers and prove out the idea on your own. Then, if the cash needs of your business force you to pursue investors for your growth, do it. If you've structured your business correctly, however, you may find that growing from 30 to 100 customers won't need any investors.

And that's a grand journey indeed!

answered Mar 26 '14 at 17:39
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Chris
337 points
  • The first sentence pretty much sums it all up for VCs: "If your ultimate goal is to have what they call a lifestyle company, no one is going to want to invest". There are angel investors, however, would indeed invest in lifestyle businesses and look forward to getting ROI on their investment in the form of dividends. – Darlene Garrett 5 years ago
  • Lotsa good info. Agree on trying to grow without outside investments. @Chris - may I suggest to highlight main points in large posts like this or add TLDR :-) – Webbie 5 years ago

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