Editor’s note: This article was first published in November 2013. It comments on episodes of TVE’s “Tu Oportunidad” broadcast that month (“last night”); the deals described, such as Vasoplato and “Mi perro es único”, may not have closed as shown on air.
Last night, on the TVE programme for entrepreneurs “Tu Oportunidad” (“Your Opportunity”, on Spain’s public broadcaster), I saw how easily an entrepreneur can lose their business in exchange for investors’ money, and at the same time turn their dream of being a business owner into a job inside their own business idea.
Although I appreciate TVE’s initiative in airing a programme like this, imported from the United States, we do entrepreneurs no favours by making them believe that accepting money in exchange for certain conditions is perfectly normal. Let’s look at the case of entrepreneurs Guillermo Serna and Guillermo Alonso, creators of Vasoplato.
At first they come in looking for €49,000 of capital, offering 1% of their company for every €1,000 invested, but, very intelligently, wanting to keep 51% of the company.
That is when investor Pablo Gimeno arrives. I don’t doubt his good intentions, but he ends up forcing these entrepreneurs to make every mistake it is possible to make in front of investors.
First, they have literally lost their business if they agree to give Pablo 51% of the company in exchange for the capital they need.
(Read: What an investor really looks for before investing in your business)
Second, letting the investors appoint the manager they want can be positive, since we are looking for synergies and experience, but it is also true that we should have the last word on that, and we will no longer have the majority to make that decision. Who’s to say that, on top of giving you part of my company, I won’t spend years paying a salary to your wife’s dim cousin with a business degree?
The words that really cut:
Pay close attention when Pablo Gimeno says he only wants to exploit the company for a few years and then exit. The dream of every investor who likes money is to own part of a company that generates profits passively for life. Investors who exploit a company for a few years and then walk away are often the cases in which the investors come out ahead and leave the founders with a business that has nothing but debts. I’m not saying that is Pablo’s intention, but he could do it, because the company would be his.
And the part that probably made me angriest was when the entrepreneur told him he wanted to stay in the company even if only as a salesman. In other words, you have a business idea, and you give your business away only to end up with a boss. There are many lines an entrepreneur shouldn’t cross, and sometimes it is better to say no to the capital than to lose what we have created.
Then there is the case of Ylenia Porras, the entrepreneur behind “Mi perro es único” (“My dog is unique”). She came in already without a business: in exchange for €50,000 she had given 90% of her company to her partner, something the “investor jury” criticised her for.
Remember this sentence: “For money, you end up being forced to do things you don’t really want to do.” I think many of these entrepreneurs will learn that lesson.
We have already given some advice to keep in mind when looking for funding, such as not looking just for money but for smart capital. But remember that probably the most important piece of advice we can give is never to lose 50% control of your company, which, it seems, is starting to happen. It doesn’t matter much if the business turns out to be mediocre, but it could matter a great deal if the business becomes very profitable in the future.
Read: 5 phrases entrepreneurs should avoid saying to investors
Featured image: Zarateman, CC0 1.0, via Wikimedia Commons.
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