Why 47% of founders regret getting paid

This article is brought to you by Equifund Technologies, LLC.

Share on facebook
Share on twitter
Share on linkedin

Ryan Cole

47% of founders recently surveyed said they regretted getting millions of dollars in startup funding.

That doesn’t sound right. Who’s upset about getting paid?

Yet that’s exactly what the survey of 400 entrepreneurs found.

To be clear — the problem isn’t so much that these inventors, founders, entrepreneurs and startup innovators didn’t like getting cash.

It’s that they didn’t like the strings that came with it.

Before getting into that, it’s important to note — most founders are not naturally financially gifted.

Their talents in other industries are what make them special. For example…

  • Biotech companies are often started by doctors and research scientists.
  • Many SaaS companies are helmed by software designers.
  • And, infrastructure businesses can be born out of a single insight arrived at by a brilliant engineer.

The point is, many young startups don’t have any financial expertise in their upper echelons.

And that can breed mistakes.

(It’s also one of the reasons we’re so fanatical about the quality of management teams!)

Now, plenty of startups get that financial expertise when they start raising money from VC funds or Angel investors…

But the problem is, raising money from VCs and Angels can be the “Original Sin” in the first place!

Let me explain…

The 5 Paths to Startup Capital

There are five main ways that startups can get an infusion of cash.

  1. Cash Flow. Become profitable so fast, you never need to go outside for cash.
  2. Private equity deals to major players. This is where a VC Fund or Angel Investor comes in with all the cash a company could want — in exchange for equity, often board seats, sometimes even control ownership of the company.
  3. Private equity crowdfunding deals. Similar to VC and Angel deals from a founder’s perspective — although with less strings, and usually a smaller amount of equity. This is the sweet spot for most startups.
  4. Public markets. Whether through an IPO or a SPAC. Getting all the cash you can imagine… at the expense of a lot of control of the company.
  5. Taking on Debt.

There’s a time and a place for all of these methods…

For instance, some companies will take years to turn cash flow-positive (and need interim injections of cash to keep the lights on). 

Meanwhile, some companies are little more than an idea, and are in need of the sort of expertise and guidance a VC Fund can bring.

Some have an obvious path to success, but need enough capital to float a few lean years… while turning to the wisdom of the crowds for help with everything from fundraising to market research.

And others are already so large and successful, they can IPO for huge sums that just can’t be realized anywhere else.

But today, I want to focus on debt. 

Because of the 47% of founders in that earlier survey that regret raising money, it’s not that they regret getting the money…

They regret the strings

And with the 20/20 vision of hindsight, those founders wish they’d just taken on a bit of debt instead.

Debt Isn’t a Dirty Word

Growing up, your elders might’ve warned you about the evils of debt.

Which makes sense… if you came of age during a double-digit inflation era, like the ‘70s. Miss one payment, or have one hiccup, and you could spend years digging out of that hole.

Debt, however, is much more palatable this day in age. With prime rates near-zero, borrowing money today is a rounding error away from being free.

Ah! But there’s a catch… 

Banks won’t lend money to companies unless they’re already turning a profit! So companies that most need to borrow are the exact ones locked out!

Here’s where having a wise financial head in the mix pays off.

Because even most founders aren’t aware of Venture Debt.

We’ve talked about it before, but as a refresher, venture debt is simply money lent, not by banks, but by funds formed to give loans to young companies.

And here’s the thing: They’re often an ideal vehicle for a number of situations startups find themselves in.

For instance… let’s say you’re a company with a product that you will release in three months. You’re highly confident the product will do well. The problem is, you don’t have the cash to cover payroll and production for the next 90 days, before money starts coming in.

Most companies would be forced to do a private raise to extend their runway… and have to give away a chunk of equity in the process.

This means long-term dilution of existing shares (and voting power) to solve a short-term problem. 

But, if you’re able to bridge that gap with venture debt… you can cover your obligations, survive to your money-making moment, and keep all your equity.

Of course, you may be paying 6-10% interest, at a corporate rate… but only until you hit revenue generation and can retire the debt (if that’s the best use of your cash).

And as an added bonus, whatever money a company pays in interest servicing a debt is almost always tax-deductible.

You can see why a business in this sort of position would be much happier getting a loan from a venture debt fund, as opposed to giving up a chunk of equity in the company.

This is just one of countless scenarios where taking on a bit of debt makes more sense than raising capital in other, more expensive ways.

It’s also why we’re taking a hard look at Venture Debt this year.

Because, while Venture Debt can be a great deal for some companies… it also can be a great way for investors to grab monthly income, in the form of debt repayments.

And in what’s usually an illiquid space, this type of investing can provide a nice return in a shorter time period for the early-stage side of your portfolio. 

Keep Your Eyes Open

Fed by a critical mass of startups tired of dealing with unfair offer sheets, 2021 is shaping up to be the year when Venture Debt goes mainstream.

If and when that happens, we’ll be here to help you sort the good deals from bad — the smart companies from the get-rich-quick money grabs — all while helping the 47% of founders who regret their private raises from making the same mistake again.

Venture debt is a powerful tool. It’s time the markets make better use of it — and for you to benefit.

Sincerely,
Ryan Cole

Ryan Cole – Analyst
Equifund


Like this article? Share it with a friend:

Share on facebook
Share on twitter
Share on linkedin

This article is not an Equifund Crowd Funding Portal Inc communication. It is brought to you by Equifund Technologies, LLC.

More Articles:

Don't make another private market investment without reading this...

The 5 Mistakes

investors make that crush returns

Download this free report now:

Just enter your name & email to access this report for free.

By submitting your email address you will receive access to this report and a free subscription to Equifund’s private investment newsletter. You can unsubscribe at any time and read more about our privacy policy here.

More Articles:

Advertisement:

Kleiner Device Labs

Investment Highlights:

  • 1

    Proprietary devices that could revolutionize spinal surgery and greatly improve success rates, reduce pain, and lower costs.

  • 2

    Over 20 patents have been issued to protect the company's technologies.

  • 3

    Just received FDA clearance for their next-generation KG2 spinal fusion technology.

Pre-Investment Agreement

The next 8 slides will allow us to process your investment. Note that these next steps are a legal requirement – Thank you for your patience and financial support of this investment opportunity. Jordan Gillissie – CEO

Before we execute the investment, it’s important for us to make sure you’re comfortable and knowledgeable in early stage investing. We want to make sure that you:

    • Received and have reviewed the education materials sent to you.
    • UNDERSTAND; that there are restrictions on your ability to cancel your investment commitment and obtain a return of your investment.
    • KNOW; It may be difficult to resell securities acquired under Regulation Crowdfunding.
    • AGREE; investing in securities offered and sold in reliance on section 4(a)(6) of the Securities Act involves risk. Investors should not invest any funds unless he or she can afford to lose the entire amount of his or her investment. Your investment may not work out, and you must be in a financial condition to bear the loss.
  • Hidden
  • Hidden
  • Hidden
  • Hidden

We are currently upgrading our system. If you click submit and the process does not continue in a few seconds, please refresh this page manually, and click Invest Now again and you should be moved on to the next step.

Complete Your Registration

By verifying your account you agree with our terms of use, privacy policy and pre-dispute arbitration agreement. Please complete the registration process by clicking the link below:

Verify Your Email

Please wait a few minutes while we create your account. An email will be sent to you shortly to confirm your admittance. Should the email be delivered to your spam or promotions folder, we recommend you move it to your inbox and mark Equifund as a safe sender.

If you have not received the email in 5 minutes, please click here to have it resent.

Questions? Our customer service team is always here to help – 1-866-338-3004

Enter your email address to get instant access to the video: