I own a 100% shareholding of a company generating reasonable profits and am currently raising a round of funding primarily to scale and fund growth. In addition to a capital injection into the company, due to personal circumstance I need to release some of the equity personally. Is this common? How would this be viewed by potential investors?

I learned the hard way that this is a very difficult problem to negotiate, and have lost out on investment deals because a co-founder was looking to take money out of the business.

If this is an unavoidable necessity for you, and an obstacle to potential growth, then you might be able to frame it in such a way that it is less of a negative - For example, if you can get some cash out of the deal now to clear a debt, it means the salary you need to draw from the startup can be reduced by 25% over the next 2 years.

The key question comes down to the potential investors - If they have been introduced to you, and the investment is being sought on the back of an existing relationship then this type of negotiation might be OK. However if you're dealing with VCs or angels with multiple competing investment offers, limited time to pitch and no complementary relationship then a need to withdraw cash from an investment round will raise red flags.

Answered 6 years ago

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