Startups shouldn't raise money
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Startups shouldn't raise money
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Re: Startups shouldn't raise money
#2Step 1 - have some very basic thing that provides some essential value, Step 2 - scale quickly and dominate the market, Step 3 - settle into viability.
Capital deployed effectively is effective that it can be distracting is one of the risks. Also, in growth phase, usually growth and getting to mass-market is more important than sustainability. If you're the new Twitter, you want to get to 500M users or whatever as quickly as you can.
Re: Startups shouldn't raise money
#3Sure, VC funding can delay the inevitable for businesses that were never meant to be, but what if 10% of the time, it gives the right person the right breathing room to create something truly great? Incessant pressure to survive isn't always the best environment for creative work.
Most startups won't know a priori which of these categories they belong to -- that's the job of VC. So I'm not sure if "don't raise money" is always the right advice.
Re: Startups shouldn't raise money
#4Founders always have skin in the game. It is called their time. Their lifetime is a very finite resource.
In reality, very few founders just raise straight away. 99% of founders spend a significant amount of time working on their business before they see the first dollar from the investor.
Operating business with capital constraints most of the time actually leads to way worse decisions. You start working with people who are less qualified because either they are volunteers or they are the only people you can afford. You start taking worse terms with customers because you need this money to survive the next few months or make the next payroll. You start taking credit card debt just to give you a few months in the hope of closing the client. You put your house as collateral to and pay social/mental costs if things don't work out.
So please please please if you have the opportunity to raise money on standard terms, just do it, unless you have rich uncle/family or wealthy yourself.
Also, people need to stop treating money in a startup financing transaction as a more honorable side of the deal. When you buy tomatoes in a store, you don't go to the store owner and be like "Yo, I gave you money, respect". Startup investors give money for shares in a business. One part of the deal is exactly as valuable as another.
Re: Startups shouldn't raise money
#5Step 1 - have some very basic thing that provides some essential value, Step 2 - scale quickly and dominate the market, Step 3 - settle into viability. Capital deployed effectively is effective that it can be distracting is one of the risks. Also, in growth phase, usually growth and getting to mass-market is more important than sustainability. If you're the new Twitter, you want to get to 500M users or whatever as qu…
I feel like it's more important for step 3 to come before step 2 now, although I understand this will not be possible for some business models. But that being said, in most of such cases it's actually questionable whether these business models should exist in the first place and are a good use of capital since so few of them workout
Re: Startups shouldn't raise money
#6The problem I see with raising money is that, practically, you’re giving away your business a piece at a time.
Sure, by raising money you’re going to grow your business more easily, but you’ve also compromised your ownership of it.
Obviously, if all you think about is cashing out after the company’s IPO, raising money makes sense. Especially, if you don’t have a sustainable business in the first place, and you’re losing money.
Re: Startups shouldn't raise money
#7> By raising money ... You can now pay your employees a salary
This author possibly lost "contact with the earth". Especially early on, most people will not join and work for free (or on the sole promise of equity down the road). Not all startups are simple CRUD apps, many require significant R&D or marketing investment upfront.
Re: Startups shouldn't raise money
#8The problem I see with raising money is that, practically, you’re giving away your business a piece at a time. Sure, by raising money you’re going to grow your business more easily, but you’ve also compromised your ownership of it. Obviously, if all you think about is cashing out after the company’s IPO, raising money makes sense. Especially, if you don’t have a sustainable business in the first place, and you’re los…
Businesses need capital for a variety of reasons. CapEx, money to buy growth where CLTV>CAC but CAC is still a big number, or maybe your competitor just raised a 30MM and you don’t want to get crushed when they operate at a loss to drive out smaller players, maybe you need to hire a sales team, etc.
It’s not a personal decision to raise or not. It’s dictated by the competition you’re facing.
Re: Startups shouldn't raise money
#9Founders always have skin in the game. It is called their time. Their lifetime is a very finite resource. In reality, very few founders just raise straight away. 99% of founders spend a significant amount of time working on their business before they see the first dollar from the investor. Operating business with capital constraints most of the time actually leads to way worse decisions. You start working with people…
Not all investors are created equal.
Taking their money might mean having to listen to them.
Nothing like fun and games introduced by a bad investor to make an already stressful situation more stressful.
Don’t build a business reliant on investment and you’ll be happier.
If you have to raise then don’t treat it as a good thing, you just sold part of your company and have more bosses now than just clients.
Standard terms hardly exist. Every deal is different.
Venture capital is a business model, Take the time to understand it before you start raising from VC’s.
There is nothing wrong with making a nice lifestyle salary from a small SaaS business without the pain of investors.
There is also nothing wrong with spending other people’s money gambling you can build a big company. Just don't let the terms prevent you from paying yourself if you go that route.
Re: Startups shouldn't raise money
#10Not raising or defer raising money can help establish the foundations of a viable long term business.
To start with, it does not feel right to have to raise money or give away equity in order to build the first MVP to look for product market fit.
Founding team should have all the skillsets required to launch the first version of the product (Tech + Marketing minimum). Tech founder who is able to code the product and has the know how to keep it running for as cheap as possible, and another founder who knows how to bring the product to market.
Iterate from there, and if lucky eventually slowly have a sustainable business. Along the journey, not having VC money trains the founders to make difficult choices and learn things the hard way. Ie. Founding team will do as much as they can before hiring someone else, optimize cost of operations rather than throwing money easily at problems, etc.
Founders who are in it for the long game and want to build a sustainable business, will find not raising money most attractive.