"I'm looking to raise capital for my startup, but I'm worried that raising capital is the equivalent of having an investor as my own boss."
"Hundreds of startups raise money every day, but are my fears of 'hiring or bringing on a boss' unfounded, or am I simply overlooking something very obvious here?"
A short while ago, while advising a very young entrepreneur, he expressed his concerns to me regarding this matter.
The truth is that the moment we bring in an investor, we have just hired our own boss. There is really no way around it. It doesn't matter how much equity we give up or how we structure the deal. The moment we owe someone money, the dynamics change. People don't tell us that when we are in the fundraising phase, but if you've ever raised money, it becomes painfully obvious.
A golden rule:
Whoever holds the purse strings of our ongoing project essentially runs our startup. If I own 5% of your company but control 100% of the capital, I run the company. I might not own the company, but if I control the company's blood flow, it lives or dies by my choice.
The vast majority of capital raises place all the necessary flow of capital—and the control provisions that come with that capital—in the hands of the investor.
Once it is signed, it is almost impossible to undo. Those controls are what having a boss is all about.
Being the Founder or CEO is only as valuable as what that title actually controls.
It's about power, not equity
The equity we give up isn't just a number; it is an exchange of power. We give up the power to make unilateral decisions, forever. We often rationalize it by saying things like: "Well, it probably makes more sense to have a pair of eyes with much more experience than me on these key decisions."
And that's true when we generally agree with those decisions.
But what happens when that decision is to fire us? Will we still be thrilled with that "voice of experience"? What if the decision is not to sell, even if it's great for us but not for the investors? Are we excited to give up power then?
Raising capital is about hiring our boss
Make no mistake, fellow founders: when we raise capital, we are hiring our boss. And most of the time, it's not only a necessary evil, but also likely the smart choice for the future of the company. Let's not fool ourselves into thinking we can have our cake and eat it too.
Every peso, every dollar raised will always come with conditions. But what do you think?
Alejandro Correia P
acorreia@geniusstack.com.mx