You Don’t Need Investment to Start a Successful Company
Four wrong reasons to seek venture capital and what to do instead
A lot of advisor-type people will tell an entrepreneur that their startup is either investable or it isn’t, with no middle ground. Experience has taught me that there is always middle ground when it comes to seeking investment.
Startup is full of these chicken-and-egg paradoxes. A couple of years ago, I wrote a post titled You Need $250,000 To Start a Company. The clever twist (debatable) was that I didn’t peg outside investment as the only source of that $250K.
I’ve been building startups and helping build startups for over 20 years. And while I work for startups that have raised outside money, and I advise startups that have raised outside money, these days I don’t even go after an investment on my own unless I can prove, with revenue, that the idea doesn’t need investment to be viable. Chicken and egg.
Very few early-stage ventures get funded, and when they do, it’s usually due to an underlying factor, like a previously successful management team or some viral phenomenon that investors are trying to exploit to capitalize on a reward with (seemingly) less risk than usual.
Is that a good reason to invest in a company? Maybe. Is it the right catalyst for a startup to seek an investment? Definitely not. Here are four more misguided reasons to seek outside investment and better alternatives for each.
Investment as idea validation
I did this a lot in my early days as an entrepreneur. Then I realized that seeking investment to validate an idea is like a dog chasing a car and not knowing what to do with it when they catch it.
Entrepreneurs are always looking for validation. It could be from peers and advisors as an initial validation of their idea. It could be from early adopters as the acceptance of their product within a specific market. We’re always seeking validation from customers in the form of revenue.
There’s a big difference between customers purchasing the product — and thereby putting in a small amount of money for an immediate return — and investors funding a company and thereby putting in a…