Ownership is magical. It’s what makes capitalism work. It creates responsibility and reward for risk. The question is, when we distribute ownership of companies through equity, do we create more ownership, or do we destroy the ownership that exists? Do new owners multiply the magic or is the special quality of ownership lost?
It depends on the situation. Every company is different – some companies would benefit from more owners, others would not.
What companies need is alternatives. Traditionally, the choices are either borrow money or sell ownership. But what if selling ownership would destroy the magic? Seats solves this problem with a third way of raising money that gives investors as much upside as they want, without ownership.
In a Seats Contract the investor does not vote and does not have unlimited upside. They take a position on a fixed amount of revenue and that’s it. All the special characteristics of ownership are retained by the owners.
So, what are the implications? Here are a few:
Start-ups are fragile. There is a spark that can be snuffed out with the wrong funding dynamics. Angels and VCs are often beneficial to a start-up’s growth, but bad relationships can cause bad outcomes.
With Seats, founders can raise seed and early-round capital without complicating an already complex business process by adding decision makers.
Closely held companies are often successful because of the nature of the relationship between the owners, for example a family or founder/management group with a long history together. If this group has a growth opportunity, they may be forced to change this ownership dynamic by bringing on new owners.
With Seats, small businesses can fund growth opportunities without changing the corporate culture or losing control.
Some businesses may want to reward or incentivize employees with equity ownership, but they may be concerned about vote or giving employees perpetual ownership.
With Seats, small businesses can structure compensation tied to revenue bands. This compensation can be very lucrative without creating an ownership type relationship. It can also be tied to revenue that is relevant to the employee’s performance.
Bottom line, Seats give owners the option to stay owners. They can share the fruit, instead of the plant itself.