Is owning 51% important? Sunday, March 04, 2007
VC Confidential advances that entrepreneurs shouldn't get hung up on having 51% in this post as there are more important issues to be concerned with in the early stages of a business.
One of the greatest misperceptions in the early stage entrepreneurial world is that control revolves around maintaining greater than 51% ownership in a firm.
It certainly is the case that this tends to be the thing that entrepreneurs are most passionate about in any funding discussion. And it's understandable if you hold the view that "control" is the most important thing, rather than doing the right deal with the best people to create the greatest capital value down the line.
Labels: startup, VC, VC startup
posted by John Wilson @ 9:05 PM Permanent Link
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3 Comments:
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At 9:06 AM,
Hawkeye said...
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Having been involved with a startup with 5 other partners who felt that control was the most important thing I have some strong views on this issue. They believed that 100% of nothing was better than 40% of some potential and so we never got off the ground with that idea. And we had two parties willing to put £2million into the business for 60% of the company as well. Mind you, if you asked Donald Trump, Richard Branson, Bill Gates, Alan Sugar, Roman Abramovich or any one of that ilk whether control was important or not I think you would get the answer that not only is it important, it is the most important thing. Why then should it not be for business creators? well the simple answer is that almost without exception the people in the list above knew how to make a business work but were not the ideas men who were really responsible for the creation of their businesses. Bill Gates had Paul Allen to do that, Richard Branson had Mike Oldfield, Roman Abramovich had the Soviet state (and its collapse) and so on. Almost without exception the actual creators could not have taken those businesses on without the input of the people we recognise as the public face of their businesses today.
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At 12:14 AM,
said...
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The key thing is "owning", i.e. having the key relationship, with the revenue. Financial investors, no matter what % of the company they own, can do nothing if the management team have strong client (revenue) relationships. A entrepreneur should give the company away "cheaply" early on to attract the capital and then power play the relatioships later to re-gain the value. Money is cheap - relationships are value.
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At 8:27 PM,
John Wilson said...
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The challenge with this approach is what is does to the reputation of the entrepreneur. Ultimately both a VC and an entrepreneur live on their reputations and power-playing is a story that gets around and you only get to play it once in most cases.
