First, the implied promise:
Taking money from professional investors such as angels or VCs usually requires that you agree to seek an exit for those investors in your plan, often targeting five to seven years as the ideal period for growth before a liquidity event.
Of course, even though that is your contract with the investors, way over half of those implied contracts never work out that way.
What if you later decide to just keep control?
It is perfectly OK for you to want to grow your company and plan to keep control for you and your offspring, with no intention to sell. There’s a name for this. We say that you are growing an evergreen enterprise, one in which outside money is to be taken in the form of loans or royalty agreements, not shares of stock or ownership.
Investors will not be happy and will usually react.
Of course, you will find yourself in opposition to your investors and some of most of your board members if you do this after taking outside investment. There are clauses in preferred stock investment agreements allowing the investor in many cases to “put” the shares back to you at the purchase price plus dividends or more after a period, usually five years, if no effort is made to find a buyer or begin the IPO process. Although rarely used, these clauses do give the investors power over your decision to turn your business into a lifestyle project.
If you have no intention of giving up ownership or even control over time, state that early and plan accordingly. Assume that your sources of funding will be greatly limited to loans, sometimes at high interest rates and requiring personal guarantees and even security in assets.
The advantage of creating an evergreen company.
[Email readers, continue here…] One thing that becomes obvious when there are no investors looking over your shoulder is that you can plan for a pacing of your growth, focusing upon long term strategies that might be very comfortable for you but not so much for outside investors. (You may recall my story of the company that was forced to grow to death by a famous venture capital investor expecting massive profit or nothing, with no expectations in between.)
A personal experience that relates
I also recall vividly one of my first investments where the entrepreneur backed out of a sale to a well-known investment company at the last second, declaring his intention not to sell “his” company. I was able to negotiate a “put” of my shares back to the company at 5x my investment. Both of us were happy, but that outcome is rare.
More advantages to not taking the money at all
Evergreen companies can focus upon profit as more important than rapid growth, upon customer service above immediate profit, and upon people first before all of these. For some, that comfort is worth forgoing building high equity value.
In fact, sometimes entrepreneurs will do better financially just taking profits over the long run then they might have by building equity for an ultimate sale. And a smaller sale of the company later when the founder retains 100% of the equity may well compensate that founder with more than if outside money had been taken early on.