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100% of Zero is Still Zero!

In the early growth stages of your company, don't be overly concerned with the percentage of equity you retain. By either setting too high a valuation and/or making sure you keep controlling interest , you might do so at the detriment of being able to get the right staff and early capital you need to get the business growing.

The name of the game is how much the equity is worth, not how much you have. With each dilution, should come more value. If you're raising capital, no matter where you think your valuation should be, your investors (and the market) will tell you what it is. Then you need to decide if your new ownership %, with that investment, is worth the same or more than it would be, pre-investment.

Establish an option program as soon as possible after establishing the business, if not at the outset. If possible, make all employees eligible to be "owners" through the option plan. It can help you conserve cash by keeping early salaries below market and really help you with employees during "lean times." Use options as incentives. And remember options can help reinforce employee retention because they have to "be present to win." That is, with most option programs, typically, there is a vesting period. And if they leave with vested options, they still are not technically shareholders until they exercise those options.

If you have a good advisor or supplier with whom you have established trust and a good working relationship, there's nothing wrong with using equity (in the form of options) as way to mitigate major cash outflows, by making them a partner.

The most important thing is to make your equity work for you.It does you no good to own 100% of something that is not increasing in value.Create value through either outside investment (and how you leverage that capital) or inside ownership (where each individual "owner" is striving to increase the value of his/her stake each day), or both!

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


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