There is a difference between raising capital and raising the right type of capital. This is something every entrepreneur needs to be mindful of when searching for investors. Although raising capital is critical to funding a successful venture, how much ownership should one be willing to give up in return?
Typically, investors exchange cash for equity ownership. For example, let's assume that you hold 100 shares of your company which is equivalent to 100% ownership. If you were to provide an additional 100 shares of your company in exchange for seed capital, then your equity stake would be diluted down to 50%. After numerous rounds of funding you might be left with only a very small percentage of your own company.
Bottom line - raising capital is important, but maintaining control and sharing in the upside of your own venture is paramount.
Here is a brief explanation of dilution provided by Frank Demmler, Professor of Entrepreneurship at Carnegie Mellon Tepper School of Business:
http://www.andrew.cmu.edu/user/fd0n/51%20Anti-dilution%20protection.htm
Typically, investors exchange cash for equity ownership. For example, let's assume that you hold 100 shares of your company which is equivalent to 100% ownership. If you were to provide an additional 100 shares of your company in exchange for seed capital, then your equity stake would be diluted down to 50%. After numerous rounds of funding you might be left with only a very small percentage of your own company.
Bottom line - raising capital is important, but maintaining control and sharing in the upside of your own venture is paramount.
Here is a brief explanation of dilution provided by Frank Demmler, Professor of Entrepreneurship at Carnegie Mellon Tepper School of Business:
http://www.andrew.cmu.edu/user/fd0n/51%20Anti-dilution%20protection.htm
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