While the majority of your focus should be spent strengthening and growing your business, you also need to focus on equity. This is especially true as your startup matures and you begin bringing on investors.
Think Like an Investor
When building a startup, you have to think like an investor. In order to acquire funding, you're likely going to need to give away equity--and investors only want to invest in companies they believe will be successful. Are you building your business on solid ground and can investors tell?
Ultimately, most savvy investors want answers to two questions: (1) Is the business poised for future growth, and (2) is there an exit strategy that will allow me to profit on my investment? If the answer to either of these questions is no, you're going to have trouble funding your startup. If the answer is yes, your focus should immediately switch to equity management. How can you allocate equity in a smart, reasonable manner while still retaining control?
Smart Equity Tips
While every startup is different, there are a few basic rules that apply to all businesses. In most cases, you'll want to adhere to the following:
How to Manage Your Cap Table
Cap table management, in and of itself, is one of the most important aspects of equity management for startup founders. If you aren't careful, you can make serious mistakes and put yourself in a compromising situation. Here are some tips for handling your cap table:
Avoid These Mistakes
Every time you take on a new investor or allocate equity to another party, there are associated risks. Stay out of trouble by avoiding these frequently made mistakes:
Manage Your Equity Like a Pro
You can't become a successful entrepreneur over night. However, by understanding how to properly approach equity division, protection, and allocation, you can ensure your business has the best chance of long-term success.