Investors or Nah?
Whether or not to take on investors is the most important decision you will ever make as an entrepreneur. On one end, you get cash to take your dream to the next level….on the other end, you lose a percentage of the profits from your hard work. That’s why it’s important that you have a clear understanding of what you want, the direction of your company, and how much of your profits you are willing to sacrifice.
Finding an investor is like a marriage because most investors are going to want to have a say in your company. If you’re not comfortable with that then you might want to look at other funding options. In the meantime, bootstrapping will be your best option.
Bootstrapping is basically when you use your own resources to drive your company forward. For example, a rapper who works an extra job to fund their mixtape or a writer who uses their savings to promote their newest book. Most artists and entrepreneurs bootstrap their way to success so don’t feel discouraged if you can’t find investors and don’t feel like you have to have investors in order to be successful.
Business Entity & Investors
Whether your company is an LLC or a corporation, if you want to take on investors then now is the time to think about what type of business you should have.
When an LLC takes on an investor, the investor will be either become an owner or a shareholder. As an owner, they will obtain a percentage of profits in exchange for their investment. They can become a manager in the company and play an active role or be a silent partner with no active role. However, LLCs have their limitations when it comes to shareholders. A shareholder investment is like stocks. In order to do this, you will need to obtain a securities exemption. LLCs are designed to protect the assets of business owners not necessarily to raise funds through stocks.
Corporations are designed to raise funds from outside investors. Usually, you hear about a company going public or IPO. This means that the company uses stocks to raise funds in order to expand. C-corporations allow you to sell stocks/shares in order to raise funds and expand your company. They also allow you to take on shareholders from all over the world. S-corporations are merely pass-through entities. You can allow up to 100 shareholders and they must be U.S. citizens/resident aliens.
*Remember nothing is set in stone. You can start small and later decide on a more permanent business entity depending on how you would like to raise funds.