Six tips for equity investment for entrepreneurs

Patrice Mousseau is the Ojibway founder of Satya Organics, based in Vancouver, BC. In 2017, Patrice won the Startup Canada Indigenous Entrepreneur of the Year Award and the UPS Demo Day on the Hill for the success and impact of her company and leadership in Canada’s entrepreneurship community.

As an entrepreneur, you may need to raise equity financing, which means raising funds in exchange for portions of ownership of your company. This type of funding may come from friends and family, crowdfunding, angel investors, or venture capitalists, and you may choose to use different kinds of equity investing at various stages in your business evolution.

Benefits of equity funding

Equity financing is useful if you are building a company that intends to pay dividends or has an exit plan. Equity financing typically comes with less risk than debt financing, with no interest payments and no pressure to pay debts. Usually, your investors are vested in your success and are aligned with your goals. Overall this capital injection can be used to help you grow through bringing on more staff, leveraging the expertise of investors, broadening interest and participation to connect with more clients and partners, creating the foundation for future financing rounds, and ultimately yielding higher levels of growth and returns.

Drawbacks of equity funding

Taking on equity investment does, however, mean that you are relinquishing ownership, may have less control and potential conflicts with investors, this requires investor interests and reporting into our operating plan.  Whether to leverage equity financing depends on your business and your comfort level with bringing on partners. Bringing on equity investors is much like getting married, you need to ensure it is a good fit.

Raising equity financing

Your approach to equity investment depends on the growth and trajectory of your business and what fits best with your strategy. You may wish to start with friends and family, move to angels or super angels, and progress on to venture capitalists. You need to understand the type of investor you are dealing with and their investment goals.

Know yourself. Consider how important it is to your to maintain control/ownership and combine that with your funding roadmap to develop a fundraising strategy.

  1. Make time. When planning to raise funding, always leave time to raise funding and develop realistic valuations of your business. Spend time and money on investing in good presentations.
  2. Network constantly. When fundraising you should be networking and raising the profile of your businesses at every opportunity.
  3. Do your homework. You are the industry expert, so do your homework on what your investors are looking for and lead with your execution and expertise.
  4. Beyond capital. How you structure your equity relationship is really up to you. You need to go beyond the money and focus on finding an investor that shares your vision for your business.
  5. Update, update, update. Even if someone doesn’t invest, ask  if you can keep in touch and update regularly.

A good investor is not just an ATM for your business. They will introduce you to new clients and partners, to talent to help you to grow, and to other investors who can support you in the future. They will give you advice on everything from contracts to an overall strategy. From launching a monthly newsletter to keep all stakeholders in the loop to setting up regular meetings, building an honest, open and proactive relationship with your investors can set you up for success.