Tech Startups: Do you really need to raise money?
I wanted to provide a founder’s perspective on the topic of raising money. As a startup, I tried to raise money several times, trying to convince the investor that I had a credible dream and they should buy into it. In hindsight, I should have spent that time building my business, not wasting precious hours of energy trying to convince someone else about my dream that I had not even proven yet. These interactions, along with my experience, inspired me to write my latest article for Forbes, “Why You Shouldn’t Always Raise Money For A New Business.”
Why You Shouldn’t Necessarily Raise Capital
My main reasons for avoiding raising money for a new business are:
- You can keep 100% of your company. Raising money does not mean you win, it means you’re digging a hole and now you have someone else to answer to.
- Owning 100% of a small company can be more lucrative than owning 1% of a big company.
- You learn a lot from doing it yourself, which can help you make smarter decisions
Many times in my career I made better decisions because I couldn’t throw money at a problem. When I had limited funds, I had to get creative to solve problems. I was also driven by the fear of failing and I’d do anything not to fail. I learned new skills because of the lack of funds, and I learned that I could do more than I initially thought I could.
Sure, in tech startups, raising capital helps scale the business quickly. But premature scaling is a leading reason why technology startups fail, and I realized early on that many of these companies were failing. Consider these statistics:
- 45% of technology companies close within the first 5 years according to the Bureau of Labor Statistics
- Ultimately 90% of tech startups fail.
If You Have to Raise Capital
If the type of business you want to build cannot run without raising capital, go for it. If it can run, at least on a small scale, focus on building a product that solves a real problem, get to market first, and fine tune it.
If you decide to raise capital, I have two pieces of advice for you. First, raise money when you have a mature business model that is proven to be profitable. Second, if you are taking on investors who want to be involved in your company, take on investors who can help you in areas where you are lacking. The right investor can add more value than money.
March 19, 2020
December 21, 2018
December 19, 2018