“100% of a small pie or 50% of a mega one” that is the question!
Launch22 member Sam Zawadzki tells us how selling equity can benefit your business.
Many entrepreneurs become very possessive over their equity, and don’t see that selling part of their business would provide them with the cash that they need to accelerate its growth!
Meeting with Sam Zawadzki, founder of proptech company Apply.Property — its evident why his business successfully took off from the beginning and his advice to start-ups was clear: “Don’t be afraid to sell equity”.
1. Selling Equity
A core plot twist to every Dragon’s Den pitch, a tycoon will offer all the money the pitcher is asking for, but ask for a greater slice of the business the pitchers are not ready to part with. Usually the pitcher is hesitant with the prospect of giving away his/her baby. But it’s this very attachment that Sam cautions against.
The hesitancy when faced with this challenge is of course not unfounded. When you sell equity to raise cash, not only are you giving away rights to future profit but you are selling the rights to a certain amount of control over how the company is managed. However you’re also getting an experienced individual to effectively join your team, once an investor puts money in they have a vested interest in your success. They will be on your side and they will do what they can to help open doors and get things moving. An investor's time, energy and network is often far more valuable than their cash.
2. Take advantage of investment.
Sam’s own company Apply.Property started with £150,000 investment which benefited from a government tax scheme called SEIS, which protects investors. It is a low risk way to kick start your business. The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies raise equity finance by offering tax reliefs to individual investors who purchase new shares in those companies. Their tax scheme meant that SEIS investors are not at risk of losing all their money if the business was to fail.
3. Conditioned spending. The right time to be a hoarder.
A final bit of essential advice from Sam: be cautious when spending money.
When working with suppliers try to make everything conditional on performance. This ensures that you receive value on the money that you spend. For instance, agreeing a condition on performance based purchase for advertising or PR is key.
So for those of you who are at the very beginnings of your start-up or completely in the thick of it, knowing when to spend and when to sell equity away will be a difficult task but when calculated it will always be at the core of accelerating your business.