04/05/2024
“Do you want power or do you want wealth?”
This was the question my mentor asked me when I went to see him about an investor's offer to put money into one of my early businesses!
Here is the background: My business had been growing fast, but I needed more capital to meet the demand. I had no choice but to look for equity investors because borrowing from the bank was a non-starter. I found some potential investors and they suggested that we get the business valued by a professional accountant.
Let’s say that it was valued at $1m [not the actual number]. The investors asked for my business plan, and it showed I needed $1.2m in capital injection.
“Good, we will give you the $1.2m for 54.5%, and we want board seats and an independent chairman”.
I balked at the fact that my own shareholding was now 45.5%, but I was smart enough not to show it and asked for a few days to think about it. So I went to see this business sage and said to him, ”I’m giving up control of my baby, and it upsets me!”
He listened to me briefly then said emphatically: “Do you want power or do you want wealth? If it’s power you want go to politics, but if it’s wealth you want take the deal.”
And with that he told me not to come back until I stopped being a “baby!”
It was sobering and yet changed my life. I went and looked at the founders of some of the most successful companies in the world at the time and found they actually had small shareholdings sometimes less than 10%. It shocked me…
I hear so many young entrepreneurs talk about 51%, and I’m immediately reminded of that conversation.
Now you want me to assure you that you will not “lose control” and I won’t because it all depends on your management of the business. It’s possible you are great at innovation but a lousy manager and you should rightly be removed by the investors; that is all part of the game.
Steve Jobs was sacked from Apple, and lucky for him he found his way back, but that doesn’t always happen.
Wealth comes as a result of getting investment and successfully scaling the business. As the company grows the percentage of your shares usually falls, but at the same time the value of the shares you have increases; that is the trade off.
If it is power (in the business) that you want and you want to have more than 51%, usually investors will avoid you, because it means your personal interest will override the interest of the company, and you might deny the company its growth potential in order to protect your percentage holding... your so called “power”. I would not personally have anything to do with a partner who thinks like that.
I want you to really think hard about what I have said. Take time to look at the percentage interests of famous founders like Elon Musk, Bill Gates, Steve Jobs, etc., and show us what you find out.
What I can tell you is that they opted for wealth over power. Even though they have small stakes, their investors did not oust them because they needed them to run the company and continue to innovate it to super growth. You will find that some entrepreneurs opted not to the run the company and instead looked for more experienced guys to do it for them. Google founders and even eBay fall into this category.
Of course, not everything is binary, sometimes it is possible to come up with structures that give you some more power even when your shareholding percentage is small, but make sure you understand what makes that possible before demanding it of investors, otherwise they will simply show you the door!
Time to get out of the !
One more thing: As a modern entrepreneur, you should consider it mandatory to read books like the story of Steve Jobs by Walter Isaacson, or the book on Jeff Bezos by the same author. stuff.
(of how a game is played) is true power!
"You have to expect things of yourself before you can do them". Michael Jordan
Image credit: UbuntuHope/Kathi Walther Bouma, Botswana 2023. "We look backwards to learn. We look forward to succeed"...
