To Raise or Not To Raise? That Is the Question
CEOs are constantly facing new challenges and dilemmas; they are tasked with wearing multiple hats, answering to various stakeholders, driving revenue growth, expanding margins, managing a team, etc. Raising capital can throw yet another challenge into the mix.
For a company that has been bootstrapped by its founders, the dilemma is somewhat magnified. With no experience of raising outside capital historically, the decision to bring on a new financial partner can be a hefty choice, and one not to be made lightly. For the most part, these CEO-owners have contributed meaningful dollars into the company — likely taking significant personal pay-cuts to ensure they make payroll every month — and dedicated 100% of their time and attention to the business (not to say that’s not also the case with venture-backed companies, of course). They’ve learned to do more with less and figured out exactly how to maximize capital efficiency. Quite frankly, the CEO of a bootstrapped company is probably a VC’s dream.
More to that point, that CEO has found a way to get his company to break-even — perhaps even turn a profit — very quickly and with very little investment. She might even be able to pay herself meaningful dividends while continuing to grow the business.
So why on earth would a CEO like that ever want to raise capital? Here is their big dilemma:
If I raise outside capital, I can then invest in the resources I’ve been holding back on, growing more quickly, increasing market share, and increasing customer satisfaction at the same time. That said, I currently own 100% of my company, and I don’t answer to anyone else – I like that. A VC is just going to come in and tell me how to run my business.”
I’ve had this conversation countless times with CEOs. They may very well recognize some of the value of bringing on a professional investor, but it always comes back to how things will change when an investor comes along. It’s true, things will change, but not always in the way the CEO is thinking:
- The company will be well-capitalized and ready to execute as opportunities come up.
- With the financial backing of an institutional investor, customers may be able to place a bit more confidence in the business, growing sales.
- Depending on the nature of the transaction, the CEO/owner may be able to take some chips off the table – so that she can now focus her attention on growing the business without the daily worry of paying the mortgage or saving for her kids’ college tuition.
- The CEO will have a board-level advisor in a Partner who has been in this situation before and has experience in working with growing companies, ultimately readying them for the ideal exit opportunity. By professionalizing the BoD with outside directors, the CEO will gain unique perspectives on her company that she may not have had access to in the past.
- Ideally, the investor who the CEO picks will also bring added value to the table outside of capital. With OpenView, we look to help our portfolio companies by providing them with access to our team and resources in OpenView Labs.
Will the CEO have to give up some ownership in her business to bring on an investor? Of course. But, as we all have heard, owning even just a sliver of a big business can be much more meaningful than owning 100% of a small business that doesn’t go anywhere. That’s not to say that having a VC will guarantee a big, great outcome; nor to say that by not having a VC on board the company won’t have a spectacular exit – there have been plenty of cases proving the opposite!
In any case, it’s a decision that shouldn’t be taken lightly; if the CEO wants to run the business as a lifestyle company that she eventually passes on to her children, raising outside money is not the best decision. If the end goal is positioning the company for a big exit, maximizing overall return, however, then bringing on a value-add partner might be an excellent next step in the company’s life.