The Inequity of Equity

Imagine this: you found a beloved company and ride it to an IPO.

What shape would you expect your outcome to take? Perhaps king-sized candy bars at Halloween and Christmas on an island somewhere?

The reality would depend on how you funded your growth. Case in point: the music platform Pandora.

As Forbes explained at the time of its 2011 IPO, “The biggest winners in a public offering would be Pandora's investors: Crosslink Capital (owns 23%), Walden Venture Capital (19%), and Greylock Partners (14%). (…) But according to the S-1, founder Tim Westergren owns less than 3% of the company.”

How so? Equity investments.

It can be tempting to view a VC’s check as validation. In reality, it should be seen as a double-edged sword. The blade’s flipside? Dilution.

Business owners beware: when weighing the cost of a loan against the cost of equity, remember: the latter is a long play. And it could be worth millions someday.