When you are starting and growing a business, it is important to make sure that you are as efficient as possible.
If you’ve ever given equity of your business away to fund goods or services, you’re not alone. A lot of companies do this in order to fund their inventory. However, there are some big drawbacks to this strategy that you should be aware of.
In this post, we’ll discuss why equity-based funding can lead to inefficiencies and how you can avoid them. We’ll also tell you what you can do instead to help your business remain profitable.
Keep reading to learn more!
Top Reasons Why Giving Equity Away to Fund Inventory and Marketing is Inefficient
As a startup, it can be tempting to give away equity in order to raise money for inventory and marketing expenses. However, there are several reasons why this is not always the most efficient use of resources.
Leads to Conflict and Future Problems
First of all, giving away equity dilutes the ownership of the company among the founders and early investors. This can make it difficult to make decisions about the direction of the company and can lead to conflict down the road. Additionally, if the company is successful, the founders and early investors will have less of a return on their investment than if they had simply funded these expenses themselves.
Giving away equity also means that the company will have less control over its own destiny. The investors who hold equity in the company will have a say in how it is run, which can be counterproductive if their goals do not align with those of the founders. Giving away equity often means that the company will be valued at a lower price when it comes time to sell or go public, as investors will factor in the amount of equity that has been given away.
Equity Should Be Reserved for Key Moments in a Company’s Life
Equity should be reserved for key moments in a company’s life, such as attracting top talent or raising capital. Giving away equity to fund inventory or marketing expenses can dilute the ownership of the company and reduce the potential return on investment for early shareholders.
A company’s equity is like its lifeblood – it’s what allows the company to grow and thrive. As such, there are a few key moments in a company’s life when you should reserve equity. The first is when you’re founded. This is the time when you have the most potential and the most to gain from investors.
The second is when you’re growing rapidly. This is when your equity will be most valuable to investors, as they’ll be able to share in your success.
Finally, when you’re profitable and stable, you should continue to reserve equity to attract and retain top talent. By reserving equity at these key moments, you’ll ensure that your company has the resources it needs to succeed.
While there are definitely times when giving away equity makes sense, companies should be mindful of when equity is truly needed and not use it as a Band-Aid solution to temporary cash flow problems.
It Can Devalue the Company and Make it More Difficult to Raise Money Later
Giving away equity in your company can have a number of other downsides. For one, it can devalue the company and make it more difficult to raise money later on. This is because investors will see that the company is not worth as much as it once was, and they will be less likely to invest.
Additionally, giving away equity can make it more difficult to keep control of the company. If too much equity is given away, the founders may no longer have a majority stake in the business. This can lead to conflict and potentially even legal problems down the road. Therefore, it is important to think carefully before giving away any equity in your company.
If you do decide to go ahead with it, make sure that you are doing so for the right reasons and that you are not putting the future of the business at risk.
It’s Tough to Track How much Has Been Given Away and to Whom
Giving away equity to fund marketing and inventory can be a tough decision for any startup. On one hand, it can be a great way to raise capital and get your business off the ground. On the other hand, it can be difficult to track how much equity has been given away and to whom. This can make it difficult to assess the true value of your company and make informed decisions about its future. If you’re considering giving away equity, be sure to weigh all the pros and cons carefully before making a decision.
It Can Be Seen as a Sign of Desperation or Weakness
Giving away equity in your company can be seen as a sign of desperation or weakness, so it’s important to think carefully before taking this step. One common reason for giving away equity is to raise money to fund inventory or marketing. However, this can be a risky move, as it dilutes the ownership of your company and reduces the amount of control you have over its future.
If you do decide to give away equity, make sure you are doing so in exchange for something of real value that will help your business grow. Otherwise, you may find yourself regretting the decision down the road.
How Kickfurther can help grow your business
If you’re a business owner, you know that one of the most important things is keeping your inventory stocked. After all, you can’t sell what you don’t have! But sometimes it’s difficult to come up with the funds to purchase new inventory, especially if you’re a small business or just starting out.
That’s where Kickfurther comes in. Kickfurther is a company that provides inventory funding for businesses of all sizes. They’ve funded millions of dollars in inventory for businesses all over the world, and they can provide funding quickly and easily.
Best of all, there’s no need to give up equity in your company. It’s a simple and convenient way to get the funding you need to keep your business growing. So if you’re looking for a way to grow your business without giving up equity, be sure to check out Kickfurther.
Wrapping up
By giving away equity, you are also diluting your ownership and control. You’re essentially making it harder for yourself to succeed in the long run. So before you go out and give away equity to fund your inventory, take a step back and consider if there might be a better way. Let us help you find that better way—contact Kickfurther today to see what this company can do for you instead.
