One Founder, Two Votes

 

What most founders fear when it's time to raise money is losing control. It's not a groundless fear; manyentrepreneurs who sell a majority of their stock to bring in capital are later thrown out by investors when times get tough.

One way around the dilemma is to retain operational control by establishing a voting trust. In effect, you sell off financial equity, but retain votingequity--you can own less than 50% of a company but still control the decision making.

Investors may well demand more shares or a lower share price in return for giving up their voting rights, and many may refuse to play at all. But the dilutionof share prices is worth it, argues Robert Ronstadt, who raised money for Lord Publishing, in Natick, Mass., this way. "It's imperative that the leadentrepreneur maintains the management control to fulfill his or her vision for the company," he says. "The opportunity for Monday-morning quarterbacking isincredible."


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