Monday, August 14, 2017

Is it better to seek investors for your start up or start with your own resources?

Is it better to seek investors for your start up or start with your own resources?

It seems that nowadays success for a startup is to get investors first (what is known as "lift a round") and then sell the company in a short time for a good amount of millions and a lot of people get into this way without understanding very well what options you have and especially its implications.

I wanted to share my views and experience on the subject, and try to compare the two extremes that exist in terms of funding a startup (although actually there are many intermediate options as we speak Where, when and how to find investment for my startup?, and even combinations thereof). I have done business in other bootstrapping , but on this occasion and given how ambitious we are with Startupxplore, have sought foreign investment (soon I'll introduce our investors !).

In any case, you must first remove complexes up and be honest with the reasons that lead you to create your company as for the decision to be successful it is important to know where you get and above all, be clear about what you want to be "higher". In simplified terms could include one of the following two options:

LIVING WELL
If what calls you is to mount what is called a business lifestyle, where you are your own boss, you earn good money and can dedicate yourself to what you like, surely you should seek investors for the reasons see below. Less risk, less reward potential

BE RICH
If you are ambitious and want to build a great company that leaves a big footprint, growing fast and where you can end up winning a lot of pasta, or become the next Mark Zuckerberg surely need much capital to grow fast. Risk, reward higher potential

In any case note that one thing does not exclude the other, and that many companies begin funding their own business model (either by themselves or funds boostrapping) until they get validate the business model and demonstrate drive, and then seek investors (and let's face it, going to be complicated: according to the Kauffman Foundation less than 1% of the startups get VC financing fund)

And that a company has failed investment does not mean at all that it can finish growing a lot or being bought by Google (the wet dream of many entrepreneurs). Just think about companies like GitHub, Behance, TechCrunch, Envato, Blogger (sold to Google) to remove many resorts.

The idea is to fund the company with our own resources (either own funds, the money we earn in other activities) until we are able to revenue from startup make it self-sustaining.

PROS

  • Absolute control over all decisions without external intervention
  • Growing pressure and internal and controllable by the founding dates
  • It can be compatible with a job (at least initially while the business is explored)
  • Shortage of funds makes us focus on what we important
  • Great to validate the business model at first
  • There is no requirement that the end is to sell the company or make it grow very fast for outputting investors
  • Suitable for businesses where there is a barrier to entry for competitors

CONS

  • Slower (potentially) by the lack of sufficient capital growth
  • Difficulty run models that are not profitable from the outset
  • There is an outside group of people who help us gain perspective and we add value
  • There is a lot of pressure to bill as soon as possible, which often means we can not act in the longer term
  • The shortage of capital complicates virtually all the team recruiting, marketing activities ... etc
  • Capital marks the speed at which we can go, which means that competition may forward us.

STARTUPS SUPPORTED BY INVESTORS

It is to seek investment that allows us to accelerate the growth of the company and involve the same ( has stock speaking) to investment funds venture capital or business angels to support us with their capital, network, experience ... etc.

PROS
Availability of capital to grow faster and expand.
Having the support and expertise of a group of investors who often know better than you the sector and have made the same way (or have supported those who have)
Access to a network of investors large and high quality ( not only important for get new investors, but customers, employees, partners)
Ability to run business models where, although there is some profitability from the beginning, be certain scale necessary for great returns or where the necessary investments are high.
Ability to mount larger teams and check out new markets, creating barriers to entry for new competitors

CONS
Partial loss of control of the company at shareholder level and in making "important" decisions.
High sense of urgency in that a group of people have entrusted their assets to grow your business fast
If things go well in the end instead of owning 100% of the cake you will have a lower percentage
If you mess investors or are not comfortable with them you'll have to "put up with them" for a long time.
Pressure to change course if investors do not share your vision on the future of the company.
Loss of focus and from time to raise investment rounds and not to seek customers.

CONCLUSIONS

Maybe some people call attention not mention things like better wages for the founder, but is that no investor will make money for you to pay better (although you should collect what you need to live). Remember that your goal is to make money doing increasingly valuable your business and not paying you a good salary. But in any case, whether you're going to look for investors or not, remember that investing is not a goal in itself but a tool that you must achieve your goals (in line with your expectations). The goal of a startup is not to convince investors how great your company but persuade customers how great your product.

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