MaRS Library Private capital: Is your startup ready for outside investors?
As an entrepreneur, you may desire a high level of involvement in the new startup that will commercialize your technology. Take the time to stop and ask yourself if you are ready to accept private capital investment from outside investors.
The following list was prepared by a venture capital investor as items for an entrepreneur to bear in mind with respect to equity investments.
Startup considerations: Equity investments
Most considerations on this list also apply to angel investments, as well as those from family and friends. Ask yourself if you are prepared to:
- Give a private investor an ownership position (and a potentially controlling interest) in your company?
- Provide an outside investor with one or more seats on the board of directors?
- Treat an investor as a partner in your business?
- Develop a list of special issues that are significant to your startup?
- Investigate whatever is necessary in order to address special issues regarding your business?
- Spend time with an outside investor to discuss all aspects of your startup?
- Let go of some of the emotional involvement you may feel as the founder/owner of your business?
- Accept that future decisions may require discussion and negotiation with others?
- Have a comprehensive business plan prepared?
- Potentially be replaced as the CEO of your business?
If you conclude that you are willing to accept investment from and work with a private investor, you can move to the next key issue.
Consider what types of financing and how much financing you have access to based on your track record and your collective personal assets (including those of family, friends and contacts).
Ask yourself the following:
- Do you or your family and friends have available cash that you can use for the initial financing of the business? Are you and they willing to risk those assets as equity investment in a startup?
- Do you have a strong relationship with your current banker (business or personal)?
- Are you willing to pledge personal assets as collateral for a loan from a bank or financial institution to start or grow your business?
- Are you known in the venture capital and/or angel investment communities? Do you have a deep network of contacts that can assist you with warm introductions to these groups?
After contemplating these questions and determining whether or not you’re ready to move to the next stage of developing your business, you’ll have a better sense of what kind of financing is appropriate for you.
If you have established your startup is not ready to accept outside capital investment or is unable to access investor networks, a “bootstrapping” strategy may work for you.
If you are ready to accept outside investment and believe you will be able to access sufficient financing from private investors, develop a long-term financing strategy for your business that plans for equity investment and the use of debt to start and scale your business.
Thinking of raising money? We’ve created a free online course to help you get investment-ready. Check out Introduction to Investment Readiness and learn useful tips, tactics and strategies to prepare for your seed fundraising round.
- Financial statements: Balance sheet and income, retained earnings and cash flow statements.
- Startup financing: Venture capital (VC) and private equity.
- Founders’ restricted rights agreement and equity shares for Ontario startups: Sample template.
- Approaching an angel investor: Four Hot Tips for Startups.
- Trademarks and trademark protection for startups.