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To seek funding or not to seek funding: how did you decide?

I know the big trend in start-up landing is to go after funding, get big and exit, but most of the businesses I've been exposed to growing up and in my network as an adult have been more privately owned companies and corporations without outside investors. I know the pros and cons of the decision, what I am looking for is a more personal look at it: stories of others decisions and experiences.
  • which factors influenced your decision?
  • Which way did you decide?
  • How did it play out?
  • If you could change your decision, would you?
  • etc.

35 Replies

Mike Mitchell
6
0
Mike Mitchell Entrepreneur
Consultant: Technology Development and Management
Most people take it because it is supposed to make everything easier. It doesn't, and it forces decisions to be different. Bottom line, unless you really need the money and know exactly what you will do with it, don't. Then if you do, look at each investor like you are marrying them.
Peter Johnston
13
0
Peter Johnston Advisor
Businesses are composed of pixels, bytes & atoms. All 3 change constantly. I make that change +ve.
Reid Hoffman defines a Startup as a small business which is going to be big - that defines the mindset.

For a small business it is nice to do everything yourself, keep control of the finances, not have too many shareholders etc. For a big business you need partners - people who can open doors and throw you in, who can find you big funding and who have the credibility to attract the big people as employees, partners etc.

That is what VCs offer which few angels can match. They form an academy which throws startups in with others and which has a feeding frenzy of top people circling them, looking for talent to pick out and make big. You have a fast learning programme and opportunities all round you.

The downside of this is they aren't really part of your business plan, you are part of theirs. They are driving the escalator, you're just along for the ride.

So if your goal is to have a few percent of a major, publicly traded company and all the hassle of stockholders, media attention and lots of employees, choose the VC route. You'll probably burn out but if you can ride the bull well, you fall off a rich person after a few years.

If your goal is to run your own business without a boss or anyone to answer to, then this isn't the route for you. Far better to choose friends as co-founders, find a high net worth individual who believes in you, exploit all the government grant funding and make friends with your bank manager.

Of course, if you simply want to see your idea happen you have to choose. Perhaps your idea would be better off as a brand under Google or Facebook - they can scale it in ways you could never imagine on your own. Just remember the days of lifetime value from a brand have gone - product lifecycles are now a couple of years, whole company business models change every five. What is a cool idea now will be old hat before you've even got there, if you grow it yourself.

Designing for high growth and sale is one strategy, building a company you control is quite another. Choose before you start - switching horses halfway can leave a bloody mess in the middle of the road.
John Seiffer
5
0
John Seiffer Advisor
Business Advisor to growing companies
What most people don't understand is that the choice is not up to you. At least not entirely. For certain business models in certain markets selling equity makes sense. For the vast majority of companies it doesn't. For others who said the same thing and are more prominent then I see this blog post.http://www.ceobootcamp.com/should-you-take-vc/
Chuck Bartok
1
0
Chuck Bartok Entrepreneur
Marketing and Sales Manager at MD Building Systems of Florida, Inc
Over the past 50 years the only time we had adversity was when additional capital was secured through lending.
Very old fashioned, grow with cash flow has worked wonders in the past 4 decades. When businesses sold they provided tidy sums or extended income.
No debt is not difficult. Of course we were always small less than 10 Million in sales, with high margin
Dimitry Rotstein
6
0
Dimitry Rotstein Entrepreneur
Head of R&D at SafeZone
It is up to the founders to decide their ultimate goal: a) build a "lifestyle" business (private source of income that will hopefully endure at least until they retire), or b) build a startup (exponentially growing business that either leads to an acquisition/IPO/buyout or dies out - there's almost no middle ground).
In the former case, investment is basically a loan that you have to repay later. If you can build a lifestyle business without such a loan, then don't take it.

In the case of building a startup (to which I subscribe by default), the question is not WHETHER to take investment, but WHEN. The timing has to be precise too.
If you seek funding too soon, then you will most likely waste your efforts (investors won't risk entering too soon), and even if you do find an early investor then you risk premature scaling, which is known to kill even the strongest startups.
And if you seek funding too late, then you risk being overrun by the already funded competitors/copycats. You can hope that they will fail, or make an exit and cease to exist, or become so big they will acquire you, but that's a huge risk to take on purpose. Also, the investment is by far the best way to determine the valuation for the startup, and valuation is the key to a good exit. In fact, Instagram and WhatApp made very large rounds shortly before acquisition to boost their valuation. I can't think of a single startup that made any substantial exit without investment.
Kelliane Parker- Lam
0
0
Kelliane Parker- Lam Entrepreneur
Founder at Time To Go Social and Kelliane Parker Farmers Insurance Agency
This is a good presentation by Guy Kawasaki, especially at minute 23-to 40. https://www.youtube.com/watch?v=HHjgK6p4nrw. For me, the question is are you looking to continue this company or scale and get out?
John OHanlon
1
3
John OHanlon Entrepreneur
Owner of Banks Printers
Seek and ye shall find.....BUT if the project is up to speed why should you need funding ?
Larry Morningstar
0
15
Larry Morningstar Entrepreneur
Business Development Consultant
Michelle, did you not proof read what you wrote before posting? As an adult, I'd be embarrassed for sending this out to this audience: 'start up landing'...'companies and corporations'...'stories of others decisions and experiences'????Frankly, what you posted is incoherent, aimless and whimsical since you're not in a position of scaling a company and determining if it warrants raising capital.
Dimitry Rotstein
3
0
Dimitry Rotstein Entrepreneur
Head of R&D at SafeZone
In addition to my previous response, a more personal one.

So far I've been in two startups that tried to raise a seed round. Both attempts came too soon (with a working prototype, but no customers) and, naturally, were a total waste of time. In fact, it felt more like "Groundhog day": you arrange a meeting with potential investors, spend days preparing a slide deck and a whole day commuting, make the pitch, answer the same irritating questions you have no good answers for, they say it looks interesting and that they'll think about it and call you, but they never call back or answer your calls. Well, some do, just to tell you something like "we need more time to think", "we want you to meet with this expert and convince him", and so on, but eventually they disappear too. Now imagine months and months of this crap...

The first time I was too inexperienced and hoped that with enough effort I can hit the jackpot (nope). The second time my partner was too inexperienced and it took me 6 months (!) to convince him to stop wasting time.

No, no more raising money for me until I have solid case for it - undeniable traction, revenues, profitability, and perfect understanding how much money I need and why exactly I need it.

On the other hand, when I reach this stage I will push for funding without second thought. After 6 months (and my constant bickering) my partner became so disheartened with his funding attempts that he jumped to the opposite extreme, i.e. "we don't need funding at all". The truth is actually in between.
Adam Crabtree
8
0
Adam Crabtree Entrepreneur
Project Coordinator at Phonoscape
Larry,

The irony is strong with you, lad! I think your own post could make for a text-book example of embarrassment. There's nothing wrong with what Michelle is inquiring. Just look at the feedback so far from the "audience". It seems to be a post worth answering. If you find Michelle's question misguided, why not hold those who've responded just as accountable for considering it worthy of feedback?
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