Many entrepreneurs dream of the day they raise a large round of funding. You get millions of dollars and tons of publicity for your company. What could be better? I used to think like this as well, until raising capital myself and reading books like Brad Feld's Venture Deals. What I learned is that raising money is not everything it's cracked up to be.
You don't get funding overnight. It takes a long time. You'll find that during the due diligence process, your company will slow down. Your attention will have to be turned your investors, not on your business. Also, the paperwork can get ugly quick. Negotiation on the value of the company and provisions can drain money and your precious time.
Finally, many articles you read don't reveal the amount of the company the entrepreneur gave away. What was the preference? Did they have to give up a board seat? These are a couple of questions that all have to be dealt with when raising money. Because of this, many times it is in your best interest to push as far as you can before raising capital from investors. This not only will give you a better valuation, but also will help you focus more of your time on building your business.
Here are some strategies to use to avoid investors as long as possible.
If you're building a physical product, you need to be on Kickstarter. Apart from the money, crowdfunding sites help confirm your business model. Never forget, the reason companies fail is from lack of sales, not a lack of product. By being able to raise funds on these sites, it proves that people will pay you for what you're creating. Another benefit is you'll have willing customers who will try out your creation when it's ready. This is ideal for you to get quick feedback and make adjustments as needed. Finally, you can build a large amount of press from your campaign. I always hear about the latest projects on Kickstarter from friends, and it causes me to contribute to their campaign.
While Kickstarter is a great resource, it takes time to do it right. Nathan Resnick, Founder of Azula Watches, has had many successful campaigns because of the work he did before. One of the strategies that works well for Nathan is sending out email blasts to your network about the future campaign. Also, a great video is a must to be able to raise money on crowdfunding sites. I've seen many entrepreneurs try to raise money on Kickstarter, and a big differentiator I found was their videos. Finally, see if you can get press or have industry experts post your campaign on social media. You want to have a rollout strategy well in advance, so by the time you start the campaign you're all ready to go.
2. Strategic partnerships
One of the ways we avoided raising too much capital in the early days of Alumnify was through strategic partnerships. We looked for help in marketing, development, as well as sales. This allowed us to build up our company without having to burn through cash or equity. You'd be surprised at how many other startups would be interested in partnering with you. They'll have skills that you need, and you'll be able to help with their weaknesses as well. Before diving into these, make sure the partnership makes sense and does not force you to deviate from your mission. You don't want to be wasting time building your strategic partner's business, if yours isn't growing as well.
3. Sell first and build later
Sometimes, you just have to sell before you're ready. Early customer adopters will get some revenue in your startup engine, and prove your model. This is risky, but if you need customer's capital to get the product out it's a good option. To go through with this, you need to ask your customer to pay some money upfront when they agree to buy your product. Tell them the date the product will be delivered, and use their money to build out what you need to make. Make sure that you are as conservative as possible when picking a delivery date.
Delays in product happen all the time, but when your customer has already given you money they will be less lenient on tardiness. If you can execute, you may even be able to build your entire business without ever raising capital. If you fail, you need to go back and readjust before the damage to your company becomes fatal.