3 ms·

Some folks get funded based on track record and/or reputation. For the vast majority of first-timers (99.9%) who might need to raise money, doing so before havi

by asanwal 15y ago

Some folks get funded based on track record and/or reputation. For the vast majority of first-timers (99.9%) who might need to raise money, doing so before having a product or at least fleshed out idea is not going to happen.

viscanti 15y ago
Even if that 99.9% could get funding early, it wouldn't be on favorable terms. What gets overlooked a lot, is the cost of selling early equity. If you don't have much traction, or even a prototype, and you do raise money, you're giving up a BIG portion of equity in return. A good analogy is the music industry. Lots of bands just starting out want to be signed to a major record label. They do everything they can to attract the attention of major record execs. A very tiny minority are successful and actually gets a contract, but they end up making almost no money, because they weren't able to negotiate from a position of power. The alternative is the band who sets up their own sales and distribution and builds their audience. Now they can dictate what deals (if any) they take. They don't need the major label anymore, but they're in a position to take advantage of it, if there's a favorable deal there. Suggesting that entrepreneurs raise money early is bad advice almost always. Regardless of the initial deal you might be able to get, having a more developed product with traction will get you a better deal. Just build it, eat ramen noodles and take a second job if you have to. Meet with investors early and often, but not to ask for money. Let them see the trajectory of what you're building, so that when you want/need to raise money, they know you and see how far you've come and what you're capable of. There seems to be way too much focus on raising money early, and articles like this only exacerbate that.

3 ms·

Some folks get funded based on track record and/or reputation. For the vast majority of first-timers (99.9%) who might need to raise money, doing so before havi

by asanwal 15y ago

viscanti 15y ago
Even if that 99.9% could get funding early, it wouldn't be on favorable terms. What gets overlooked a lot, is the cost of selling early equity. If you don't have much traction, or even a prototype, and you do raise money, you're giving up a BIG portion of equity in return. A good analogy is the music industry. Lots of bands just starting out want to be signed to a major record label. They do everything they can to attract the attention of major record execs. A very tiny minority are successful and actually gets a contract, but they end up making almost no money, because they weren't able to negotiate from a position of power. The alternative is the band who sets up their own sales and distribution and builds their audience. Now they can dictate what deals (if any) they take. They don't need the major label anymore, but they're in a position to take advantage of it, if there's a favorable deal there. Suggesting that entrepreneurs raise money early is bad advice almost always. Regardless of the initial deal you might be able to get, having a more developed product with traction will get you a better deal. Just build it, eat ramen noodles and take a second job if you have to. Meet with investors early and often, but not to ask for money. Let them see the trajectory of what you're building, so that when you want/need to raise money, they know you and see how far you've come and what you're capable of. There seems to be way too much focus on raising money early, and articles like this only exacerbate that.