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Entrepreneurs are not greedy with equity

  • By Alan Knott-Craig
  • November 20, 2015

entrepreneur equity

 

When you start a business the first advice you get is, “Don’t give away equity”.

 

Equity is the most expensive form of compensation, so this is generally good advice.

 

But it is bad advice if you want to build a big business and make a big impact.

 

We all need partners in life and in business. “The more people swimming in your direction the more likely you are to reach the other side.”

 

Some businesses need to raise successive rounds of capital, which means the founder must be careful not to dilute too much early otherwise she will end up with a fraction of the equity, i.e.: an insurance company. This leads to discontent.

 

Some businesses are cashflow positive from day one, which means the founder may have fellow shareholders that are not adding value but collecting a fat dividend every month, i.e.: audit firms. This leads to discontent.

 

This post is not about the afore-mentioned.

 

This is about businesses that don’t require more than 2 or 3 rounds of capital, and that are dependent on the help of non-operational partners, be it for financial advice, media contacts, mentorship, credibility, whatever.

 

These partners may not add value on a day-to-day basis, but when the moment comes they contribute more than their weight in gold.

 

Be generous with equity. Share the love. Make other people rich.

 

You’ll make less money from your current venture, but your odds of success are greater, and when you need help for your next startup you’ll find a queue of people waiting to back you.