Editor’s Note: In the new podcast Masters of Scale, LinkedIn co-founder and Greylock partner Reid Hoffman explores his philosophy on how to scale a business — and at Entrepreneur.com, entrepreneurs are responding with their own ideas and experiences on our hub. This week, we’re discussing Hoffman’s theory: You need to raise more money than you think you need — and potentially a lot more. Listen to this week’s episode here.
Deciding whether to raise money or trade equity in your business for the much-needed help can be a tough call.
With previous startups, I raised money and traded equity, but with Due, my current venture, I made the tough decision to build it out with some co-founders. We determined immediately that we would use our own funds and sweat equity.
I had some very specific reasons for this choice, and my hope is that this explanation may help you decide how to approach the funding of your own startup.
When I first started out as an entrepreneur, I didn’t have the money or the experience to begin and run a startup on my own, so I believed it was best to involve others with more experience who could help finance and guide me in the direction I was heading.
This approach was beneficial to a certain degree, until I realized that those wanting a piece of the action had completely different perspectives about what the startup should become. The startup was no longer “mine,” it was “ours.” When things become “ours,” the other part of that ours has to be consulted, their opinions used — often — and the original shape of the dream goes down a different path.
In some ways, I felt like I was losing control over my original ideas and did not know how to get it back because of owing these investors a return — so I went along with it. The result was that I felt unhappy and stifled. Although the company was launched, I got out as soon as the startup had made enough money to satisfy the investors. My passion for it had evaporated as soon as others began telling me how to run my company and controlling its direction.
However, during that time, I learned a vast amount from those involved in those startups, and I’m grateful for those experiences and what they taught me. But, I also saw other ways to ramp up my knowledge and experience without necessarily bringing people into the business and giving them a piece…