8 ms·

Self-Finance or Raise Money? A Quandary for Start-Ups

3 points by digisth 13y ago

mindcrime 13y ago
It is quite a quandry, but here's my take for what it's worth: At Fogbeam Labs, we've chosen to go the self-financed route for now, and for as long as we can. Here's why (in part): A. Taking outside money means spending time fund-raising, and not time talking to customers or building our products. B. When you take outside money, you take on a different set of expectations and goals, which may or may not align with your own. C. Due to (A) and (B), you can find yourself on a merry-go-round (as a founder) where as soon as you finish raising one round, your focus has to turn to raising the next round. You literally take yourself out of being able to focus on customers and/or product. D. Dilution cuts into your equity stake E. Investors will likely have veto rights over any acquisition or liquidity event, and - again - their interests might not align with the founders' interests. You may have a chance to sell that would make you rich on an individual level, but which the investors my veto. F. The investors are likely to want to exercise at least some control over what you are doing and how you do it. Especially if they think of themselves as "smart money". But they may or may not actually have good advice to give, but you feel pressured to respond to them since, well, you're spending their money. G. The earlier you take outside money, the more favorable the terms are going to be towards the investors. If you delay until you have traction, or even - FSM forbid - are cash flow positive, you have a lot more leverage and can negotiate terms that are more favorable to you as a founder. The flip-side, of course, is that - unless you are already wealthy - the self-funded route is probably going to be a lot slower. I mean, we could certainly move faster right now if we had a million dollars in the bank and could go out and hire employees, and advertise, etc. But what I disagree with is the notion that moving slow means giving up any given bit of "land" (to use the analogy from TFA) indefinitely. I'm more of a "slow war" kind of guy - the attitude here is "sure, have the un-seized land for now, we'll come take it when we're ready for it." We also realize that you don't have to "rule the world" to be very successful. I mean, yeah, I'd LOVE to build the world's largest and most powerful enterprise software company, and that is the ultimate goal to be quite honest. But if I still own, say, 50% at a point in time when a chance to sell our for, say, $50,000,000 comes along, then hey, that would be something to talk about, as that's into "FU money" territory. OTOH, if I wind up with my ownership share diluted down to 1%, then we have to reach a much larger valuation in order for me (on a personal level) to achieve that same standard. Probably the one thing that messes with my head on this, though, is that I'm not a real young guy. I'll turn 40 in 2 days, so there's a little nagging thought that going the slow and steady route might mean that - even IF we're successful - I'll be so old when we get there that I won't get much chance to enjoy it. :-(

3 points by digisth 13y ago

It is quite a quandry, but here's my take for what it's worth: At Fogbeam Labs, we've chosen to go the self-financed route for now, and for as long as we can. Here's why (in part): A. Taking outside money means spending time fund-raising, and not time talking to customers or building our products. B. When you take outside money, you take on a different set of expectations and goals, which may or may not align with your own. C. Due to (A) and (B), you can find yourself on a merry-go-round (as a founder) where as soon as you finish raising one round, your focus has to turn to raising the next round. You literally take yourself out of being able to focus on customers and/or product. D. Dilution cuts into your equity stake E. Investors will likely have veto rights over any acquisition or liquidity event, and - again - their interests might not align with the founders' interests. You may have a chance to sell that would make you rich on an individual level, but which the investors my veto. F. The investors are likely to want to exercise at least some control over what you are doing and how you do it. Especially if they think of themselves as "smart money". But they may or may not actually have good advice to give, but you feel pressured to respond to them since, well, you're spending their money. G. The earlier you take outside money, the more favorable the terms are going to be towards the investors. If you delay until you have traction, or even - FSM forbid - are cash flow positive, you have a lot more leverage and can negotiate terms that are more favorable to you as a founder. The flip-side, of course, is that - unless you are already wealthy - the self-funded route is probably going to be a lot slower. I mean, we could certainly move faster right now if we had a million dollars in the bank and could go out and hire employees, and advertise, etc. But what I disagree with is the notion that moving slow means giving up any given bit of "land" (to use the analogy from TFA) indefinitely. I'm more of a "slow war" kind of guy - the attitude here is "sure, have the un-seized land for now, we'll come take it when we're ready for it." We also realize that you don't have to "rule the world" to be very successful. I mean, yeah, I'd LOVE to build the world's largest and most powerful enterprise software company, and that is the ultimate goal to be quite honest. But if I still own, say, 50% at a point in time when a chance to sell our for, say, $50,000,000 comes along, then hey, that would be something to talk about, as that's into "FU money" territory. OTOH, if I wind up with my ownership share diluted down to 1%, then we have to reach a much larger valuation in order for me (on a personal level) to achieve that same standard. Probably the one thing that messes with my head on this, though, is that I'm not a real young guy. I'll turn 40 in 2 days, so there's a little nagging thought that going the slow and steady route might mean that - even IF we're successful - I'll be so old when we get there that I won't get much chance to enjoy it. :-(