I recently had dinner with an old friend who has been running his technology company for 20 years. He wanted my thoughts on maximizing the value of his business leading up its sale. I asked him why he wanted to sell and he told me a sad and somewhat familiar story.

My friend started his company with his own money and built it up for two decades to the point where he was employing twenty people. Then, five years ago, he wanted to launch an ambitious new product, so he decided to raise some outside capital.

He sold 70% of the company to a group of angel investors.


In the beginning, things went well. With all the new cash, he was able to hire five developers and set up a new sales office in Brazil.

Today, he has fifty employees, sales have doubled since taking on investors, and the company is about to declare its first profit in five years.

On the surface, it may seem perfect, but my friend is miserable; he doesn't like what his company has become. Major decisions need to be approved by the board, which can't seem to agree on anything. Even worse, my friend's three most senior lieutenants have provided notice that they plan to leave the company within a year; they no longer recognize the company they joined before outside investors came into the picture.

Compounding this internal upheaval, the investors now want out and are pressuring the founder to sell the company.

I couldn't help but feel sad. My friend had built a great business up over 20 years. It wasn't a huge business before he took on investors but it was a good business with a family atmosphere, profits to share and a solid reputation in the city where they operate.

The Perils of Outside Money

Is my friend better off financially for having attracted outside money?


Even though his company has doubled sales and built a great product, my friend had to dilute his ownership position by three quarters in order to get there. In his case, a quarter of a bigger pie is worth a lot less than all of a smaller pie. He also had to stop declaring dividends over the last five years while he pumped all his excess cash into the growth his investors were after.

Yes, it can work out better for entrepreneurs who raise professional money, and it has; but for every WhatsApp or Ethereum, it seems there are ten or twenty stories just like my friend's.

My advice: hang on to your equity like a selfish child clutching a bag of M&Ms, and raise outside money only as your absolute last resort. Here are three counter-intuitive ways to keep all your equity for yourself:

1. Focus

Do you really need to launch The Big Idea? Would you be able to self-fund a smaller version of your idea and grow into your big idea over time?

Last year, when I was writing my new book on the subscription business model, I interviewed Mike McDerment, CEO and cofounder of the subscription business FreshBooks.com. I asked him how he had managed to scale up a company to more than 100 employees without taking a dime of venture capital. He told me that one reason was laser focus. They poured all their limited resources into one product rather than spreading themselves too thin by trying to build a software company with multiple products.

2. Get Customers To Invest

Another strategy is to ask a company that has a strategic reason to want you to offer something new to fund the development through advance payments. In return, you can provide your customer with a time frame where they will be the only company to be able to use the new product you develop. That's how Bill Gates got IBM to fund the development of Windows version 1.0.

3. Charge Upfront

Could you charge for all (or at least some) of your product or service upfront? If you move your model from a transactional business to a subscription model, you can often charge for a full year of your product or service upfront in return for a discount.

For example, when a Fortune 500 company subscribes to a RoleView research package from Forrester Research, they pay their $30,000 upfront for a year's worth of service. As a result, Forrester is swimming in money and typically carries between $50 and $100 million in cash.

Selling equity in your company is like losing your virginity: once it's gone, you can't ask for it back.