Quora Answer: How Do You Obtain Necessary Capital without Surrendering Ownership in a Business Idea or the Company?

The following is my answer to a Quora question: “Suppose someone has an idea for a new business that will cost $100,000 to start, but generate $250,000 annually.  However, they have almost no money to invest.  How should they obtain the necessary capital without surrendering ownership in the idea or company?” 

First, they have to develop the idea, and put it into a business plan.  This means they need at least four things: an executive summary to explain it in two paragraphs, a financial plan to show the projections and the cost, an introduction of the team and their roles, and finally, an exit strategy to give an idea of how they want this to end for the investor. 

Second, they need to spend time practising their pitch.  In four to six minutes, they should be able to explain to the investor what the business is about, and what they are offering for the investment.  If the investor puts in capital, they get an equity stake.  If they extend debt financing, they have options for convertible debt at a later date, with coupons payable at agreed upon intervals.  Sometimes, the investor would request board representation. 

You maintain control of your company in two ways.  The first is to keep the majority of the equity, and only release enough of it to reach the next stage of fundraising, or until you have raised enough that you do not require further fundraising.  The second is to ensure that you have majority board representation. 

If you have a good idea, and the ability to execute it and make money out of it, you should not be the one coming up with the money.  Investors are plentiful; good ideas are not.  Getting an investor is like a marriage.  If that investor does not fit, look for another one.