Starting and owning a business can be a rewarding experience, but what most people don’t realize is that launching and running a startup is really hard work.
When people think of companies like Uber and Airbnb as the standard in startup business, the startup lifestyle can be romanticized and seem more glamorous than it really is.
I recently spoke with startup business advisors and tech industry experts:
Brian Cohen has 30 years of experience in the technology industry, both in leadership roles and pursuing entrepreneurial ventures, and has worked with several notable tech companies like SPI Dynamics, QASymphony, StrataCloud, Hewlett-Packard, and Lancope (now part of Cisco).
Jon Hallett has invested in more than 25 tech start-ups throughout his career. He’s been board chairman or actively on the board at enterprise software companies including Bettercloud, Salesfusion, Cloud Sherpas, Pointivo, Rachio, Terminus, and QASymphony.
Brian and Jon know what it takes to fund and launch a startup, and shared some of their tips for success. Here are a few key takeaways from our conversation.
Things to consider before financing your startup
Is your business idea viable?
Do research to measure the competition, measure the market, and measure the idea itself before you launch. Brian shared that he, “got in trouble a couple of times for not doing so sufficiently,” in his own personal experience.
What stage is your company in?
Are you trying to get funded at the inception phase, when it’s just an idea, or later on when you already have a customer-base? This will impact the amount of capital required and the level of difficulty for raising it.
How experienced is your CEO/founder? If a founder has had prior success building a start-up, they can help a business raise more money by reducing the perceived risk for investors. As an accomplished CEO, Brian has been asked to help with projects because of his experience and reputation in the industry. However, it’s not just the CEO’s career that can make a business idea look more or less desirable to investors – the entire team can also have an impact on raising funds.
Do you have a clear roadmap? Beyond the original idea, it’s crucial to lay down the plan and different steps to show investors that you have clear goals and know how to get there.
When starting a business from scratch, build some level of success and viability for the business on your own, then start exploring ways to raise capital. Once you have proof your idea can work and know how you’re going to expand, it’s much easier to get the funding you need.
There are several different ways to fund a business. Evaluate all the options before deciding which path you want to take.
Funding methods for startups
Professional Venture Capital (VC) or Angel Investors: This option is not for everyone. Venture Capital or Angel Investors are for larger, enterprise-sized businesses that have a high return potential.
Crowdfunding: Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people. When I asked Brian and Jon about crowdfunding, they had mixed reviews. Jon explained, “I’m not unilaterally for or against crowdfunding, just know there are a lot of alternatives you should consider..” Brian, on the other hand, is a fan. When asked about crowdfunding, he said, “Anything that you can do to raise funds that allow you to keep more control over your company is great.”
Bootstrapping: With bootstrapping, founders and employees work without compensation to save money and build the company until it reaches profitability on its own. Entrepreneurs regularly contribute savings, sweat equity, or even use credit card debt to get the company to where it needs to be.
Brian and two of his colleagues used bootstrapping to fund their first company. All three of them put money down and shared office space with another company to cut costs. They would even consult for other businesses on the side to make money while looking for the right thing to build.
Friends and Family: When your company is small and you don’t need a significant amount of capital to get started, try asking close family and friends for help. "Raising money through family and friends is a good plan,” Jon explains, “as long as you make it clear they can lose 100% of the money they invest.”
And asking your friends and family can raise more money than you'd think! For instance, the founder of SPI Dynamics was able to raise $175,000 through family and friends before Brian even came on board as CEO.
Self-funding: If you’re ready to start your business now, just fund it on your own. You don’t always need a big investment when you’re small and just starting off. Jon says, “self-funding is an excellent choice when you don't need a lot of capital because it allows you to stay in control.” However, it comes at a cost. Businesses without funding typically move slower than their competitors. Jon continues,
“The cost of not moving faster to keep control, in a market that values speed, can lead to losing to competitors with access to greater capital and resources."
Don’t raise more money than you need or before you need it. Wait until you’re ready to show exactly what you’re going to do with those funds. The goal is to maintain a reasonable valuation and to not dilute the value of your company. Figure out what works for you.
About the Author
Romu Gaboriau is a Digital Marketing Manager at Worldpay US. In addition to working with successful startups, Romu has been using Inbound Marketing expertise with clients of all size in diverse industries to deliver long-term. Passionate about user experience, social media, and marketing innovation, Romu has been able to use my international background to create unique marketing visions. French is his native language and dedicated is his state of mind.