Look for a Win-Win Deal

I really enjoyed reading a recent post on a VC blog, discussing the “right” level of ownership you should give up to a VC.

Within the post, the author, Fred Wilson notes that the level of VC ownership is generally “20pcnt, but it is frequently 30pcnt”.

The post raises a very good point about VC’s needing a certain level of ownership, however its my opinion that the said level has no intelligent reason behind it, rather the level is set because of company policy or “just because”. Fred Wilson describes this behavior by VC’s as being unproductive and says that VC’s are putting their needs before the needs of their portfolio companies and the entrepreneurs who form them.

A great point is raised within the post through an example where a 10pcnt investment in a company has yielded Fred’s company supperior results to that of much higher investment in other companies.

I personally like to cap the amount of company I share with investors to 30pcnt (unless I’m ready to get out of the company completely). At 30pcnt I have room to offer key staff or future investors a small level of shareholding, whilst maintaining control of the company.

There are always exceptions to the rules, and a higher percentage of company stock may be offered where the stock holds less power (non-voting rights, no dividend receipt ect). My point is this: don’t give up the company unless your prepared to lose control of the company. A strong cash injection is often the knight in shinning armor you’ve been looking for, however a lot of entrepreneurs are blindsided by the ellure of cash and jump into deals that aren’t always best for them or their company. Consider the long-term and hold out for terms that offer a win-win relationship.

I encourage yo to read the full blog post by Fred Wilson (simply click here). The post is short and the comments are very insightful.