Calculated Financial Risk is Better than no Risk.
“100% of a small pie or 5% of a mega one” that is the question!
Launch22 member Sam Zawadzki tells us how facing some financial risk and selling equity can actually benefit businesses — especially for startups plagued with financial struggles.
When starting any type of businesses whether or not a startup, money will and should be one of your biggest concerns (nightmares). It’s definitely not enough to have a brilliantly-enlightening-life-changing product. We all know the importance of finances, so why do so many startups face financial problems?
Because they shy away from the small risks that will accelerate their business. Essentially, they become overprotective business hoarders.
Meeting with Sam Zawadzki, founder of proptech company Apply.Property — It’s evident why his business successfully took off from the beginning and his advice to startups was clear: “Don’t be afraid to sell equity”.
1. Selling Equity
A core plot twist to every Dragon’s Den pitch, a tycoon will offer all the money the pitcher is asking for, but ask for a greater slice of the business the pitchers are not ready to part with. Usually the pitcher is hesitant with the prospect of giving away his/her baby. But It’s this very attachment that Sam cautions against.
The hesitancy when faced with this challenge is of course not unfounded. When you sell equity to raise cash, not only are you giving away rights to future profit but you are selling the rights to a certain amount of control over how the company is managed. However If this is done with a plan, if you know how you will utilise the investment, then why not take the risk? It will accelerate your business.
2. Take advantage of investment.
Sam’s own Apply.Property started with an excellent £150,000 investment via SEIS, one of the low risk ways to kick start your business. The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies raise equity finance by offering tax reliefs to individual investors who purchase new shares in those companies. Their tax scheme meant that Sam was not taking a big risk and as SEIS investors are not troubled with the thought of losing money, it was a no brainer.
3. Conditioned spending. The right time to be a hoarder.
A final bit of essential advice from Sam: be cautious when spending money. Now you can be a hoarder.
As simple as it may sound, introducing the concept of conditioned purchases will save entrepreneurs money but more importantly it will guarantee value for the money they spend. For instance, agreeing a condition on performance based purchase for advertising or PR is key, as they will only spend their money once they get the quality they are looking for. Tools such as Google Adwords are worth tapping into.
So for those of you who are at the very beginnings of your startup or completely in the thick of it, knowing when to spend and when to trade equity away will be a difficult task but when calculated will always be at the core of accelerating your business.