If you think that raising capital is the best way to get your business off the ground, you’re wrong, according to Mark Cuban.
You should actually do the complete opposite, the billionaire entrepreneur said during a panel at SXSW last month, and opt to start a business “with as little money as possible.”
Cuban, of course, has invested in hundreds of startups, including some on ABC’s “Shark Tank.” But those companies often already have momentum, and need external funding to achieve a specific goal.
“People get this mindset that, ‘OK, I’m starting a business. Now, I’ve got to go raise money,'” Cuban said, adding: “Just remember raising money, whether it’s from me, on ‘Shark Tank’ [or] anywhere, that’s an obligation. There’s somebody who wants that money back.”
Instead, Cuban recommends using your own personal savings to get any business off the ground. That way, you’re “controlling your own destiny,” he said. “The more of your equity that you can retain and control, the more the upside.”
That’s “where the big bucks are made,” he added.
Cuban started his first company, a computer systems company called MicroSolutions, on his own dime. He sold the startup to CompuServe for $6 million in 1990.
Four years later, Cuban and his friend Todd Wagner invested $10,000 in a small startup called Cameron Audio Networks. Later, sensing potential, they offered the company’s ownership a buyout — ultimately assuming a large majority of its equity and turning it into Cuban’s second company, Broadcast.com.
That company sold to Yahoo! for $5.7 billion in 1999.
“If you look at people with a B next to their name, it’s because they own all that equity in their company,” Cuban said.
An examination of the world’s richest people shows this to be at least partially true. Elon Musk, who has an estimated net worth of $187.9 billion, owns about 23% of Tesla and 74% of Twitter, according to Forbes. Jeff Bezos — whose estimated net worth is $125.1 billion — now owns “a bit less than 10%” of Amazon, Forbes reports.
Still, holding onto your company’s equity until you have no other option is a smart move, Cuban said.
“I’ve sat next to people who have sold companies for billions of dollars and they did OK,” he said. “But they own 2% of the company, when it was all said and done.”
Disclosure: CNBC owns the exclusive off-network cable rights to “Shark Tank,” which features Mark Cuban as a panelist.
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