By DIYA GULLAPALLI
“Selling equity can be an effective way for entrepreneurs to get their hands on much-needed cash — so long as they also know they may be acquiring some outspoken partners as well.
To Joe Strazza, founder of WinMill Software Inc., this was a fair exchange. When Mr. Strazza started his New York-based company in 1994, he decided to swap some ownership in return for fresh capital. Over the next six years, he raised $3 million by selling limited partnerships to investors and reducing his own stake along the way to 20% from 40%. Some 100 investors, mostly friends and family, got a chance to earn dividends and to receive a portion of the proceeds if the company were sold. In return, their cash helped Mr. Strazza’s business grow from three workers in one office to 180 employees in four cities.”
– Equity financing sure sounds cool! Yet, as with any type of financing, be careful and make sure you know what you are getting into. Many entrepreneurs have lost their businesses to outsiders because they were not careful. Look at the founders of Cisco to see a good example of owners losing control and finally ownership of a company. -ed.