The Risks of Taking on an Equity Partner

Taking on an equity partner in your business is one way to bring in some much-needed capital to get your business off the ground or to scale it up to capture a larger piece of the market. And while it may indeed be the right decision for many businesses – it is not for every business or every business owner. There are risks involved, and you need to understand what those risks are before you choose to take on an equity partner.

Cultural Misalignment

Chances are, you have worked hard at developing a company culture that aligns with your personal values and preferences. A new partner with different values can quickly throw that culture off. When vetting potential partners, it is extremely important that your ideas of what the company culture should be are closely aligned.

Divergent Exit Plans

Do you intend to scale up quickly and then sell your business to the highest bidder, or do you intend to stay with it for the long haul? Both are acceptable means of doing business, but any partners you take on should be on the same page as you.

Loss of Control

Trading equity in your company for a cash investment can help your business grow, but it also means you are giving over some control of your company to another person or firm. If you aren’t quite ready to let go of that control, you may want to investigate other funding options before you take on an equity partner or consider selling only a minority position. With a minority partner, you remain in control.

More (or Less) Intrusive Relationship Than Expected

What are you expecting from an equity partner? Do you want someone who is more of a silent partner that offers you a cash infusion? Or do you want someone who will give you feedback, advice and expertise or use their business network to help the company? Before you enter into a contract with an equity partner, be sure to discuss your expectations and understand their level of involvement.

Mismatch in Planning For Growth

What are your plans for your business? New geographical markets? Are you entering a new sector? When vetting a potential equity partner, be sure to have these discussions to see if your thoughts on the future of the business are aligned.

Mismatch in Pace of Investment and Growth

How fast do you want to scale your business? Is there a level you want to stop scaling at? Again, the desired pace of investment and growth needs to be a topic of conversation with a potential partner.

Finding an equity partner can be a great way to boost your business, but it’s important to be aware of the risks and to vet the right partner to mitigate these risks. Having these important discussions with any potential partner is a great place to start.

Contact CBGF today

If you would like to learn more about how the Canadian Business Growth Fund can help your business access the capital it needs – with a patient minority growth equity partner – give us a call today.