“XYZ Company raises $5 million in its second round with [insert VC firm here]!”
“XXX Capital has invested [a buttload of money] into [insert startup name here]!”
Headlines like the ones above are everywhere now. On Twitter, Google News, The Daily, TechCrunch, Wired, you name it. It?s almost like a badge of honor nowadays?raising money and proudly telling the world about how awesome your company is because it raised a bunch of money from so-and-so.
I would posit that some startups? mission is simply finding seed, angel, and/or venture capital (VC) money. As if that?s supposed to be the main goal of the entity. It?s not. At least, I don?t think it should be. And if it is, what?s the point of the entity anyway?
My opinion is that finding outside money is not a sustainable business strategy. Yes, outside money is needed in nearly all ventures, but it?s a necessary evil, not something to be proud of or brag about. And in today?s economy, you need a lot less than you might think.
Did you know that there are strings attached to that money? Huge strings? Balls and chains? As in 3-year exit strategies that mean selling or kicking you out? Did you know that bank money is dirt cheap in comparison? Why do you think there are so many VCs out there now? They all want to make money off of your ideas and your hard work.
If you call yourself an entrepreneur or otherwise wish to build a successful, sustainable, long-term business, then you should borrow as little money as you can or none at all. Otherwise, your focus will change?you will get distracted seeking funding, and your eyes will not be on your customers or product but on pleasing VCs and the people that gave you money. You will focus more on your pitch than on your product. Your focus will be on short-term goals instead of long-term goals.
And if you do convince someone to give you money? You will blow it on stuff you don?t need, you will get complacent, you won?t make the tough decisions that sometimes you need to make and are forced to make when there?s very little money available. You end up talking about your ?burn rate? with your backers more than about your customers and your product. In other words, your firm will become inefficient.
- You give up control?
- ?Cashing out? begins to trump building a quality business?
- Spending other people?s money is addictive?
- It?s usually a bad deal?
- Customers move down the totem pole?
- Raising money is incredibly distracting?
I am pretty sure that the folks at 37signals know what they are talking about. ?After all, their products are used by millions of people worldwide. ?Yes, millions. ?They are well respected everywhere you look. ?They built and continue to run a sustainable, highly profitable company.
I?m trying to learn some things from those guys. ?And I hope that, before you get distracted looking for and focusing on obtaining outside money, you read their book first.