A lot of people forget VC is a growth mechanism. It depends on someone's plans. Maybe you don't want to be a big 100 million dollar company that has to play the "VC Exit" game. Then sure, you don't need to raise money. You didn't at fog creek, and you're killing it.
Some people like to play the "VC Exit" game and raise the money to grow a company to potentially become huge. Sure they could still grow with their own revenues, but a 6 million infusion will sure make it happen a lot faster.
Most of this everyone already knows. Just a lot of entrepreneurs out there that want to raise money when a) they havent done the simple things they should have or b) for validation and because tEh Bl0gz instill this need to raise VC to succeed.
if you spend the same amount of effort chasing paying customers, as you do chasing VCs, you'll be able to pay all your bills and then some with your revenue.
And hey if you end up needing a ton of cash later, you'll have a much easier time finding VCs to invest in you, seeing as how you'll have some real data to back up your claims
Awesome advice. I'll just tell the landlord, supermarket, phone company, and other suppliers that I'm trying to sell my product before I've raised money and they should be proud of supporting a venture whose founding members and first hires are all willing to work for fresh air.
Sorry for the snark, but I'm in a position like this just now. I am in fact working for nothing at present and stretching out a small personal windfall in order to do it. I'm lucky and grateful to have the freedom to do that. We're not a tech startup so our needs are a bit different from grab laptop, update SDK, churn out code - but even so, unless you happen to have deep pockets it takes time and money for any business to make its first sales (which in our case are b2b and thus not free for the customer). I could not and would not do this if I had kids or if Mrs Browl didn't have a good job that allows me to risk my time participating in this venture I'm working for.
I haven't; I work as a producer - in practice, a manager - for a small TV show that's currently on hiatus due to money problems. I'm not a business person or an entrepreneur, and pretty terrible at making money (just don't have the instinct for chasing it), so the only business I've 'launched' is my freelance work. My skillset is rapid technical ability, creative communications (ranging from manuals to PR copy to video editing), and crisis management. I get lost or cause trouble in big organizations, am a valuable catalyst/trauma specialist in startups, and do best at assembling things where the pieces are lying on the floor and everyone else is confused about what to do next.
Aye exactly, the linked post is great advice, but if you can't pay your company run rate (i.e. you can't pay your own rent!) then you have two options: raise money or get a job/other source of income and keep going part-time.
"Raise money" can include selling, but if you're still developing the product, what do you sell? Not everyone can conjure weeks' or even months' worth of living expenses out of the air while the product gets done.
Right. To make more product (in this case, a cooking show), I need to hire people and equipment. there are limits to what's possible with energy and good will alone, and asking people to intern or work for equity on mission-critical tasks (rather than strategy) is often a false economy. At present I'm arguing that we're budgeting too much on sales and promotion (although it's very important) and not enough for the actual production costs.
Not unlike coding, there's an unfortunate perception that enthusiastic and creative people are worth less than the revenue specialists. There's a reason for the stereotype of the sales guy who makes 10x more than the engineer who delivers a functional, reliable product :-/
Great advice. Don't let the headline prevent you from reading the actual blog entry. It walks you through a real-life dialogue. You can't escape its mechanical precision: you will be forced down the path of thinking "what an idiot I am of going after VCs now".
This blog post is the difference between teaching the theory ("I understand the argument") and experiencing it ("now I get it").
I've often wondered about the sanity of using VC funding as a metric for measuring the success of a start up. If your business is simply developing tech to raise funding, then you're existing in a vacuum. Abraham Lincoln would have made a create start up founder:
"Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights."
"The penniless beginner in the world," he once explained, "labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him." This steady, gradual advance, Lincoln insisted, is "the prosperous system, which opens the way for all — gives hope to all, and energy, and progress, and improvement of condition to all."
I'd go one step further, "Make Something People are Asking For"
If you're making something people want, but don't yet know they want, you might be tempted to raise investment first.
If you're making something people are already asking for, you won't have much time for VCs. You'll be too busy fulfilling the customers who are knocking your doors down.
Sometimes it's nice to see someone say something that oughta go without saying.
First-mover disadvantage: customers sometimes believe they own the product and shouldn't have to pay for it, though. If it seems obvious, it will be devalued. Thus the many companies which make something cool on the internet that's popular but hard to monetize.
I think a comment below really hit it on the head: "If you spend the same amount of effort chasing paying customers, as you do chasing VCs, you'll be able to pay all your bills and then some with your revenue."
I know some folks who spend years of their life (and more than that, in terms of its physiological and nervous impact, probably) chasing funding. If they just bothered to make small sales and steadily grow revenues - ideally, bt not necessarily recurring - during this period, they wouldn't need funding. And if they wanted it, they could get it on infinitely better terms, not because the VCs really care about how cash flow-positive they are (it's the marketability potential that impacts the valuation on exit in an acquisition, not concrete P/L--that matters more in IPO, which is really not practical for the moment), but because they really are in the position of not actually needing it to survive.
A great read indeed. I recommend Steve Blank's book for further reading on getting and developing customers: The Four Steps to the Epiphany - http://www.cafepress.com/kandsranch.58024175
One problem, from the VC's perspective, is that if the startup starts selling successfully, they may not NEED VC.