Before you accept outside investment in your company — whether it be from a family member, an angel investor, a venture capitalist or a private equity firm —consider what you're about to give up.
As the sole shareholder in your business, you can run it like a personal piggy bank: turning excess cash into a bonus, and writing off your car, trips and anything else that could be loosely described as an expense.
That all changes when you invite outside investors into your company. Your job goes from looking after yourself to looking after your shareholders. Even though you may still have the largest slice of the pie, you have to start acting for all of your shareholders equally.
That 10-day trip to Hawaii for a two-day conference suddenly needs to be reconsidered. You may want to drive an A8, but your new shareholder would much prefer you opted for the A4.
Not only do you lose your slush fund, you limit your options for the future. Outside investors put their money into your company with an expectation that it will be worth more down the road. Their best shot at getting a decent return on their cash comes when you sell the business.
But you may not want to sell just yet. Or you may prefer to keep open the option of selling to the next generation of managers or a family member. Take outside money and all of a sudden your best friend with the chequebook becomes a thorn in your side, pushing you to sell to a third party whether you want to or not.
Outside money can help you grow and it often comes with a network of contacts that would take years to cultivate on your own, but the price is not only the equity you give up, it's also the luxury of treating your business like your personal fiefdom.
Special to The Globe and Mail
John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He writes a blog about building a valuable – sellable – company.