Entrepreneur Mark Cuban plays up his investing on Shark Tank, but he shared some cold wisdom in a recent interview: Taking VC investment should be a last resort. Even if he's the one offering the money.
He breaks it down in a recent Chase Jarvis interview:
Sweat Equity is always the best equity. The next best version of equity is Customer Equity where you get customers coming in buying from you and that's how you're funding your growth. Third is using kickstarter/IndieGogo as a way to support you. The last thing on the list is venture capital money. They aren't giving it to you for charity - and the minute you take that money, that's not the end, but when the obligation really starts. You thought you had an obligation to grow your business before you took the money? You have no idea.
His warning is extreme - after all, he is an investor himself - but his argument boils down to three points he says all capital-focused entrepreneurs should consider.
First, delaying venture funding forces you to prove your concept earlier. Without funding support, you have to find a sustainable way to run your company.
Second, you avoid looking at venture funding as a goal. As Cuban shares in the interview, he is confused by Silicon Valley celebrating funding rounds since the founders had to give away part of their company and are now beholden to the demands of the funders.
Lastly, looking at funding as a last resort puts you in charge of your own growth. As Jason Fried and David Heinemeier Hansson, co-founders of the successful startup Basecamp, say in the book Rework, they found that funding often forces unnatural routes to getting bigger.
Cuban adds that funding does make sense in certain unique situations, like when growth needs to be accelerated. In most cases, though, bootstrapping is the smartest move - and today you would have plenty of great company.