Funding Q&A: What’s the best advice on funding that you’ve ever gotten and why?
A: Only take it if you absolutely need it. “It can be enticing to be lured in by the big fundraising numbers that many companies tout. I’ve been told from early on to be very wary of taking in more money than you actually need. When money gets loose, you lose your scrappy mindset. You also then have stakeholders in your business with real expectations of you.” Darrah Brustein, darrah.co
Don’t just focus on equity. Consider debt. “For companies that are generating cash flow and see an opportunity to grow faster, but capital is a limiting factor, there are some great debt options available. We considered going back to our equity investors for more money, but one of our investors introduced us to her banker, and with interest rates so low, we ended up getting a great deal.” Fan Bi, Menswear Reviewed
Treat it like a marriage. “I think of the analogy that the funding process is marriage, not dating — which means the investor has to be willing to fund your project without needing fierce convincing. It is a mutual agreement in which both sides should be happy to work together. If one is more dependent on the other, it may lead to uncomfortable zones in future. So it’s important to be straightforward from the beginning.” Kevin Xu, Mebo International
Only accept venture capital if you need to be “first to market.” “The only reason why you need venture capital is if you need the ‘first mover advantage’ to penetrate a market with an easily duplicable business model. If you feel as if a more capitalized company could take your model and capture market share with funding, then raise capital and let the arms race begin. If not, build your business based on real revenues and scale organically.” Matt Wilson, Under30Experiences
Vet the people vetting you. “The world of venture capitalists is no less filled with toxic people than the general population. Some people, even frequent investors, can be an absolute pain to work with at best and toxic to your entire business at worst. For example, if I get an offer, look them up, and find that they are constantly in-and-out of civil court, I know I don’t want what they’re offering.” Adam Steele, Loganix
It’s not an ATM machine. “Funding is there to build a business, not support me personally. I had to make sure I had my own way to cover my living expenses until the business could become self-sufficient and turn a profit. Only then could I start drawing a paycheck. Any funding I got, I knew I had to connect the spending to something that would be necessary to develop the business.” Zach Binder, Bell + Ivy
Cash is king. “More cash is better than less cash. Cash now is better than cash later. Never run out of cash. A startup’s most precious resource is cash in the bank, and a founder’s first priority is to always make sure you have enough to keep going.” Joe Landon, Space Angels
Not all dollars are created equal. “Investors are not just capital sources; they are also your partners in business. You need to look beyond the economics of the deal to understand the people behind the money. How will they treat you if you hit a rough patch? Do they share your values? Is their investment period long enough to be consistent with your timing and vision for the business?” Christopher Kelly, Convene
It’s OK to ask for less. “It’s tempting to jump on a generous offer, especially when you’re strapped for cash, but it’s poor judgement to ever take more than you need. Not every investor is interested in a smaller slice than they’re aiming for, but many are still very receptive to making a smaller offer if you insist that’s the only amount you’re comfortable with.” Matt Doyle, Excel Builders
Wait as long as you can. “Over our five-year life span, Cater2.me has been a bootstrapped startup. This has allowed my co-founder and me to grow the company in the manner that we envisioned, without any outside influences persuading us to go down a direction we may not see as beneficial. By taking on funding, you may gain more resources to grow your company, but you sacrifice some control in the process.” Alex Lorton, Cater2.me
There’s no such thing as free money. “There are both pros and cons of seeking funding for your business startup. However, every dollar you acquire from an investor comes with expectations: how your business will perform, what goals you’ll meet, and projections for your growth potential. When you accept funding, you also accept the weighty responsibility of meeting those expectations.” Nicole Munoz, Start Ranking Now
They need you more than you need them. “Never allow the investor to feel you’re desperate to have them on board. Remember, they need you. Without you, their cash flow remains stagnant, collecting interest that leads to marginal gains. Investors want to see their pockets swell. Never be pompous or dismissive of their importance, but show an investor that they’re missing an opportunity if they don’t invest in your business.” Blair Thomas, eMerchantBroker
(Article written by Young Entrepreneur Council)
(SOURCE: TCA)
