Accountant-turned-software developer John Whelan says founders shouldn’t regret giving away equity to investors.
The entrepreneur has taken £2.4 million in exchange for 60% of his Stockport-based business My Digital, and earmarked another 10% to his employees.
“In 2016 we raised seed capital of £1.2m in exchange for 30% equity, but we burned through that by 2019,” he says.
“We took investment of £1.2m from Northern Powerhouse Investment Fund in exchange for another 30% equity.
“The Northern Powerhouse Investment Fund were the natural fit for us. I don’t think they’d mind me saying this but it is a ‘softer’ kind of institutional investment.
“Primarily the money was to power growth. Two thirds of our staff are developers and only two of our staff are sales. Where we have grown, we’ve not done it through sales staff on phones.
“Should we be more aggressive in terms of growth? Am I too conservative because I’m an accountant? These are the questions I ask myself and get asked in the boardroom.
“There is still a requirement to have a commercial return on the investment. With the stage that the business is at, I now need to shift the dynamics away from the development side and more towards sales.
“Salespeople generally interview very well and you can normally divide what they say by three. Sales is probably the most difficult job in the company. Each salesperson should normally generate three times their salary. The chances of failure are higher.
“We’ve opened up channel partnerships which can expand sales reach without the committed cost.”
In addition to the 60% equity, Whelan has given away another 10% to its employees, leaving him with 30%. However he has no regrets.
“My advice is if you’re going to be successful, unless you’re extraordinarily lucky and work in a particular niche, you are going to have to raise money,” he says.
“Don’t have buyer’s remorse. Don’t see it as giving away equity but rather selling part of your company to be more successful in the future.
“Whenever the company gets sold, I’m not going to say ‘I’ve only got 30% and I should have 60%’ because we should always remember that without the cash we wouldn’t have the type of company we’ve got now.
“The investor has given you the money in good faith. Don’t regret taking it and always remember that they are owed a return.”