You're a founder seeking venture capital. How can you address concerns about giving up control?

Involve customers as investors. It has proven highly advantageous sometimes. They invest to secure deliveries, influence R&D, ensure scaling and offtake. Customers can provide valuable knowledge and networks, boosting startup success. Downside is that they steer the startup to benefit themselves, reducing returns for other investors. The benefits include customers' vested interest in the success and being a customer base, integrating the startup into an established business ecosystem and supply chain. A customer-as-investor strategy may present challenges in finding exits, especially if some investors compete in the end market. This approach has been effective in sectors such as automotive, aerospace, and our bio feedstock vertical.

In addition to these strategies, it's crucial to emphasize the potential value-add that venture capitalists can bring to the table beyond capital. This can include strategic guidance, industry connections, operational expertise, and access to resources that can significantly accelerate the startup's growth and development. By highlighting the value-add that investors bring, founders may be more open to sharing decision-making power and equity in exchange for these tangible benefits.

One common mistake many first-time entrepreneurs make is undervaluing their company's shares. I've seen founders give away large portions of their company for just a few thousand dollars, leading to significant dilution over time. This often results in investors passing at the VC stage, as renegotiating with early shareholders can be difficult. While early shares may seem insignificant, it's crucial to carefully consider every share issued & every addition to the cap table. As your company grows, anticipate dilution & understand that, in most cases, the board will oversee critical decisions. Your role as CEO becomes crucial to maintain strong & transparent communication, gaining their support to execute the vision.

Clearly understand the implications of equity dilution and how it affects control. Explain to potential investors how much equity you are willing to trade for capital and the rationale behind it. Highlight the benefits of bringing in experienced investors who can offer not only capital but also strategic guidance, industry connections, and valuable insights. Emphasize that the right partners can significantly enhance the company's growth prospects.

If you seek venture capital, be prepared to relinquish some control. If maintaining control is a priority, consider alternative funding sources. Today, many founders instinctively turn to venture capital almost immediately. This approach differs from a few decades ago when startups focused on acquiring customers long before considering selling the whole or parts of the company. Over time, who contributes more capital to the company: customers or venture capital firms? If you want to retain control of your company, which is perfectly natural, focus on finding customers who are willing to support your growth.

Understand the interests and strategic targets of the tour company's board members. Most of the time, decision clashes and conflicts of opinion happen due to disagreements within the internal team, not due to external factors. Ensure an optimal negotiation, with a few points to back up the perspectives you won't push forth, considering the diversity of people and the range of their interests weighed proportionately.

Discuss the composition of the board of directors and how decisions will be made. Propose a balanced board structure that includes both founders and investors to ensure diverse perspectives and fair decision-making. Outline the roles and responsibilities of each board member and the processes for voting on critical issues. Highlight how a well-structured board can drive better governance and strategic direction while still respecting the founder's vision.

Negotiate specific decision rights and protective provisions that safeguard the founder's control over essential aspects of the business. Clarify which decisions require investor approval and which remain under the founder's authority. Examples include maintaining control over day-to-day operations, product development, and hiring decisions, while investors may have a say in significant financial transactions, mergers, and acquisitions. Ensuring clarity on these points can alleviate concerns about losing control.

Select investors who align with your long-term vision and values. Conduct due diligence on potential investors to ensure they have a history of supporting founders and fostering positive partnerships. Discuss your goals, company culture, and growth strategy openly with investors to find common ground. Emphasize the importance of mutual trust and collaboration in achieving shared success. Aligning interests and expectations can help build a strong, cooperative relationship with investors.

É difícil ver na prática essa questão do empreendedor perder controle ou autonomia por conta dos investidores, isso acontece em estágios mais avançados da empresa quando se tem acima de 500 colaboradores e uns 8 anos de vida pelo menos. No early stage, os bons investidores vão mais apoiar, abrir portas e impactar de outras formas positivas. É fácil achar esse perfil que agrega, basta conversar com algumas investidas do portfólio e pegar as referências. Lembre-se de que você escolhe o investidor também, tem que evitar querer captar no desespero e aceitar qualquer coisa. O importante é ter claro um plano de crescimento para dois anos, buscar se relacionar o quanto antes com os investidores por meio de mentorias seja em eventos ou email!

When there’s mutual respect and shared objectives, the investor-founder relationship becomes far more collaborative. This alignment not only helps in maintaining control over the direction of your startup but also enhances the likelihood of constructive input from investors who understand your industry.

While considering exit strategies, it is important to conduct a comprehensive research and understand what previous pathways look like in your sector/markets. Few datapoints to look at include the buyers, pricing, years of operation to exit, channels of exit (IPO, Acquisitions, secondary market sales…). A solid awareness and understanding of previous exits will enhance your thought process on exit strategies and best ways to channel operations towards it. In emerging markets where there may be very few or 0 exits in a particular sector, past exits in other close sectors within the same market or exits in same sector in another market could be a useful datapoint to look at for hints on what an exit looks like in your sector.

As a founder, addressing concerns about control when seeking venture capital is crucial. I focus on finding investors who align with my vision and values, ensuring that we can work well together. Clear communication about my goals and the company's direction helps build trust and mutual understanding. I emphasize that bringing in investors can provide valuable expertise and resources that can help the company grow. Highlighting the benefits of a collaborative partnership can ease concerns about control. It's about demonstrating that we're working towards the same goal and that their input can enhance our success. Discussing a well-thought-out exit plan also reassures investors that there is a clear path to realizing returns

In today's investor-friendly market, startups face challenges in avoiding significant dilution due to low valuations. To counter this, founders should prioritize bootstrapping for as long as possible, as it can lead to higher valuations and lower dilution when they eventually seek external funding. Additionally, careful planning and strategic calculations for future funding rounds, up to Series B, are crucial. For an in-depth understanding of these dynamics, I recommend reading "Venture Deals" by Brad Feld. This book offers valuable insights into navigating the complexities of startup funding and ensuring long-term success.

Funding is a double-edged sword - on one end, you will get incentives to boost your revenue, get more traction, or innovate your product to the extremes, but on the other end, you are diluting your stake in your own company. Future funding affects ownership not because of capital but because of the "what's in it for me?" Since this typical question is very subjective based on the condition and future growth plans of your company, the general suggestion is not to be swayed by just financing and try to cutout on capital distribution in the earlier stages(up till seed A/B).

It is important to avoid to bring in what I call "toxic goals". Some Venture Capitalists, for instance, require that the client basis grows at a certain pace in order to invest not taking into consideration that the start-up should perfect it's product or service to broaden margins before just "selling more". This is specially true in Latin America where I've seen SaaS companies that charge 10$ a month to their clients hiring 20 people who earn $1000 a month each in order to bring onboard 500 new customers... in a few months they needed another round of investment