Giving away Equity in return for NO Investment
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Has a Business Angel Investor ever asked
you for equity in exchange for no investment?
If not, then this
article may be worth reading.
As an entrepreneur you have taken the big step of deciding that you wish to go
ahead with seeking investment from a business angel investor and have made all
of the preparations and crafted the perfect pitch for the investor willing to
listen. This article does not intend to explore the 'art of a perfect pitch' or
'the art of crafting the business plan of the year', as the internet is already
saturated with articles on this. Instead, this article intends to explore three
1) understanding what type of entrepreneur you are: serial entrepreneur,
lifestyle entrepreneur, or empire builder and how to use this information to
specifically target business angel investors that will understand you and your
business, as opposed to simply mass mailing your business plan to any investor
that is willing to listen.
2) the importance of entrepreneurs' to reflect on what their real motivations
are towards wealth accumulation before contacting and targeting ANY potential
business angel investor and
3) how to use this information to weigh out what a business angel investor can
actually bring to your company, before deciding how much equity you wish to
exchange for capital - or even no capital!
Raising investment, especially angel investment is a value proposition. Angel
investors are specifically seeking to invest in equity (or take on the
responsibility of debt) and make a return on investment, whilst an entrepreneur
is seeking to not only raise investment for his company – but also – to gain
experience, contacts, and knowledge. The second part of this equation for an
entrepreneur must be measured and quantified by an entrepreneur much in the same
way as an Investor would quantify and measure your business scalability, future
growth prospects and profit forecasts.
Sadly quantification of ‘knowledge and know-how’ is usually lost on most
entrepreneurs, and it is important when seeking an investor to ensure that your
personal and business weaknesses' are matched with an investor who possesses
strengths in these areas.
For example if your main aspiration to wealth accumulation is to become an
'empire builder' then targeting business angels that are running successful
businesses and have been through the process of raising money themselves will
tend to be much easier and more direct to deal with and they may just understand
you better and be more experienced to detect any trouble spots or red flags in
your investment proposal or existing business that would give you invaluable
advice on not only what these errors are but also on how to correct these errors
before they can become catastrophic. This alone can be more valuable than the
If you share business characteristics with a ‘serial entrepreneur’, you could
most probably already be running several companies simultaneously and this could
mean that a business angel who has experience in running several successful
multiple businesses simultaneously could provide you with valuable expertise on
how to strategically create a network of managing business resources and how to
coordinate and organise your employees. Furthermore, he/she could bring you
suppliers, customers, and employees through some form of synergy or strategic
partnership. And your business angel could already know important players in
your industry and understand your need and driving force of a lucrative ‘exit’
rather than building and maintaining a successful company.
In conclusion, entrepreneurs must understand that capital investment vs.
equity is not the only consideration to take into account when you are
seeking to raise capital from a business angel investor.
More specifically, valuing what an angel investor can bring to you and your
company in the way of know-how, experience, mentoring, networks, and resources
MUST also be quantified and added to the capital investment that the angel is
willing to invest (especially when your business idea is only at the seed stage)
and from there, you can value the overall investment proposition as good value
I am sure there will be a time in every entrepreneur’s colourful career when
they are fortunate enough (or even unfortunate enough) to meet an Investor that
is skimming a fine line between being incredibly confident or incredibly
arrogant in believing that in light of their past successes their contribution
in terms of time and effort will justify them taking a massive stake in your
company with no capital investment. Though this will undoubtedly be a hard
proposition for many an entrepreneur to swallow at times like these it may be an
idea to consider that owning 50% of something is always better than owning 100%
of nothing - or so the investor will confidently say.
About the Author
is a premier UK business Angel investment network and small to mid sized
business networking portal that matches active business angel investors with
entrepreneurs' seeking investment capital and business funding.
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Article Published/Sorted/Amended on Scopulus 2009-01-30 12:38:42 in Business Articles