The Wisest Entrepreneurs Know How to Preserve Equity

Source: Harry Campbell for The New York TimesThe New York Times published an interesting article last week about how some entrepreneurs manage to make million, if not billions, more than others by being careful not to sell too much of their business too soon. The decisions entrepreneurs make early in terms of financing can have large ramifications on how much money they reap later.

Author Steven Davidoff compares the initial public offerings of Internet start-ups such as Groupon, Zynga, Zillow, and Angie’s List. He shows how entrepreneurs who avoid selling their precious equity early, before reaching the I.P.O. milestone, can emerge far better off financially. 

If an entrepreneur obtains venture capital financing early in the business’s life, it is typically at a huge cost. In exchange for this financing, the start-up’s founders will have to sell part of their company, thereby diluting their ownership. Davidoff warns, “The decisions [entrepreneurs] make at the beginning can have wide ramifications, not only for their future success but their profits.”

 

This article in The New York Times illustrates nicely just why US Capital Partners provides added value to small-cap and lower middle-market businesses. At US Capital Partners, LLC., we provide alternative debt financing to just these kinds of companies. In doing so, we help them avoid the expensive mistake of giving away equity too quickly or cheaply. Whether it’s a senior debt leverage or minimally dilutive senior or subordinated growth-capital financing, we can provide the financing a business needs to grow without having to give away too much equity at the early stages. We respect the risk venture capitalists must take and the returns they require from the “winners,” but sometimes there is a debt alternative, even alongside equity, that is less dilutive. Entrepreneurs owe it to themselves to explore all the options before taking excessive or unnecessary dilution in exchange for growth capital.