Do you watch Shark Tank? It’s an interesting show but I can’t watch it. It stirs me up too much and I start yelling at the TV. My yelling takes two forms:
- “Take the deal right now because you will never get it financed anywhere!!!”
- “Don’t give up that ownership share! You can find financing for your deal”.
The point is not that we have hard and fast rules to know when to keep full ownership or what you will struggle to get financed.
Nonetheless, there is a lesson or two here. In our work at the SBDC we come across entrepreneurs who refuse to share any ownership which may mean they are disadvantaged finding financing or having the resources to get their business up and running. This is the theorem “ I’d rather have 100% of nothing than give up some ownership share to have a successful business.”
The converse of the theorem has the entrepreneur giving up excessive ownership (almost always 50%) for less assets than the percentage would suggest just because they really like their new partner. (Sample comment—“My mother in law is a great person and we always get along.so we’re going to be equal partners.”) A further corollary is that the new business owners never write down each other’s duties nor create a mediation process for the 50./50 mess coming their way.
Talk to us about issues when taking on investors.
Remember this: Less than 100% ownership of a successful business is better than 100% of nothing.