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If Your Goal is to Work for Yourself, What's with the Outside Investors?

If you asked any aspiring or current entrepreneur the question "why become an entrepreneur?," a majority of the responses would be something like "to work for myself," or "to be in control of my destiny." Yet, invariably, once they explain their business concept, in the next breath, they will tell you that they will be raising "x" dollars to accomplish "y" tasks over the next "z" months.

Starting a business and raising capital are two, mutually exclusive, endeavors. Yet, unfortunately, many entrepreneurs are under the mistaken belief that you can't have one without the other.

You need capital to grow your business. But that doesn't necessitate raising money from professional investors. Outside capital, that is beyond "friends and family" and your own bank account, often comes with a huge price tag, way higher than whatever equity percentage it represents.  

At the very root of it, professional investors' main interest is getting a return on their investment. They might like your business concept, but only to the extent that they believe it can be successful and, in turn, give them the kind of return they seek. And, to be sure, with professional investors, there is no such thing as "silent money."

Once they have committed their capital, they become active in every aspect of your business, sometimes, not necessarily to the benefit of the entrepreneur or the business.  And, should there be a month or quarter when you miss your financial objectives, you will become the recipient of a "financial colonscopy," having every aspect of your business under review. But, they will merely be protecting their investment, while you feel like you are back in corporate America.

And you ask, "can they do that?"  And the answer is, yes, they can and will!

Often, this strikes at the very heart of why an entrepreneur set out to start the business in the first place...independence!  Because once you bring in outside professional investment, regardless of their percentage ownership, you are no longer independent.  In fact, you have a boss - your investor(s).  They may, initially, provide some broad advice, but as time goes on, that advice may become more strategic and less guidance than directive.

So, at the end of the day, if you want your independence, but still want to grow your company, good old-fashioned "bootstrapping" may be your prime choice.

As Jon Oringer, founder and CEO of Shutterstock, a publicly-traded stock photography company that was bootstrapped early, noted in his article The Myth of Venture Capital, "...bootstrapping doesn't have the same allure as receiving millions in funding, but it will help you develop a solid foundation that will give your business the best chance of succeeding."

The rationale, here, is that the less capital you have, the tighter you will manage it, especially, if all of it is yours. Of course, there's a downside to that. You may never have all the capital you need when you need it to grow the company the way you want. But, you will remain independent and you will still be in control of your own destiny.

Now, this is not saying that in certain situations, especially ones with a huge potential upside and a need for significant marketing and/or growth capital, that outside professional investment doesn't make sense. But it is always a tradeoff, to be sure.  And one an entrepreneur should really think about and not just accept that outside investment is a necessity.

So, if independence and control are the things you seek, you better think twice about that investor pitch!

"The Entrepreneur's Yoda" knows these things.  He's been there.  May success be with you!

What's been your experience with outside professional funding?  Please share your thoughts in your comments.  It can help another entrepreneur.

If you like this post, by all means, share it with your networks and colleagues.

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