June 12, 2007

#9 — Skin in the Game

This post can be summarized by the following questions:

If you don’t believe in your business enough to put your own “skin in the game”, how can you expect investors to put their financial resources into your deal?

Appropriate questions that you might ask yourself:

  • Have you put your own money into the deal?
  • If not, have you worked for free?
  • Have you put a 2nd mortgage on your house?
  • What have you given up to make this deal successful?  (another job, nights, weekends, etc.)

Don’t be haste or stupid, but if you want to attract capital from investors, you better believe enough to put skin in the game!

FREE Webinar on Keys to Entrepreneurial Success

This week’s FundingUniverse webinar will be FREE to ALL FundingUniverse users.

Expert investor, Martin Frey, from the Olympus Angels will discuss the Keys to Entrepreneurial Success. After his presentation, Martin will answer your questions.

Join us for the FREE webinar on June 14, 2007 at 9 am (PST), 12 noon (EST). Click here to learn how to particpate in the FREE webinar.

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Who has control of the company?

After a company has been funded, what would you say to an entrepreneur who has been the acting CEO and wants to maintain control of the company? As an investor, do you now have control of the company? In other words, is control of the company vested in the Board of Directors or the CEO?

In short, neither. A company’s shareholders control the company; it is the shareholders who select the Board of Directors.  According to Bill Payne, entrepreneur in residence at the Kauffman Foundation, “the shareholders of the company elect the Directors and, depending on state law and the charter and by-laws of the company, a majority of the share ownership of the company can normally elect the majority of the Directors, hence controlling the company. And, in most startup companies the founder/CEO (and/or the founding team) have a majority of the ownership and hence control the Board. So, at the early stages of the company, control is circular question, that is, the Board controls the management team but the founders elect a majority of the Board. In a fight over control and depending on the by-laws of the organization, the shareholder majority generally determine the make-up of the Board and the direction of the company.”