Bringing on an Investor Means Hiring Your Boss

"I'm looking to raise capital for my startup, but I'm worried that raising capital will be the equivalent of having an investor as my "boss." Tons of startups raise money, so are my fears of bringing on a boss simply unfounded, or am I just overlooking something very obvious here?"

May 6th, 2020   |    By: Wil Schroter

The moment we take on an investor, we just hired our own boss. There's 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 raise money, but if we've ever raised before, it becomes painfully obvious.

The Golden Rule: She with the Gold, Rules

Anyone who holds the purse strings to our startup essentially runs our startup. If I own 5% of your company but 100% of the capital, I run the company. I may not own the company, but if I control the blood flow of the company, it lives or dies by my choice.

The vast majority of capital raises place all of the flow of capital and the control provisions that come with that capital, in the hands of the investor. Once that's signed, it's nearly impossible to undo. Those controls are what having a boss is all about. Being the Founder, or the CEO is only as valuable as what that title controls.

It's about Power, not Equity

The equity we give up isn't just a number — it's a power exchange. We give up the power to make unilateral decisions — forever. Often we'll rationalize that by saying things like, "Well, it probably makes more sense to have an extra pair of veteran eyes on these key decisions."

And that's true — when we mostly agree with those decisions.

But what about when that decision is to fire us? Are we excited about the extra voice then? What if the decision is that we won't sell even though it's great for us, but not for investors? Are we excited about giving up the power then?

Raising capital is about hiring our boss

Make no mistake, Founder friends, when we raise capital we are hiring our boss. And most of the time, it's not only a necessary evil, but it’s also probably the smart choice for the future of the company. Let's not delude ourselves into thinking that we can have our cake and eat it, too.

Every dollar raised comes with strings attached.

In Case You Missed It

Will Investors Want to Run My Company? If I take on investors, will they push me aside and run the company?

What Should I Never Say to an Investor? I'm going to be raising capital for the first time — I know what I want to tell investors, but what should I avoid saying altogether?

Can I Have a Boss Again? (podcast) As a Founder, what happens when we're forced into going back to reporting to someone else now that we've tasted the freedom of Founderhood?

About the Author

Wil Schroter

Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes BizplanClarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.

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