Raising money for your startup can seem exciting. It seems as though it’s the first step in what will eventually become your Zuckerberg-sized concept you’re going to blow up toRead More
The post 4 Scenarios Where Raising Money For Your Startup is a BAD Idea appeared first on The Entrepreneurs Library.
]]>Raising money for your startup can seem exciting. It seems as though it’s the first step in what will eventually become your Zuckerberg-sized concept you’re going to blow up to the moon.
These investors want to give me money? …Well of course they do because my company is totally destined for greatness.
Okay, you may not get this absurd with your internal monologue, but in all likelihood it’s the feeling you’ll get when you get a “yes” in a room with an investor.
That said it’s not all sunshine and rainbows. In fact, if you can get creative and scrappy and bootstrap your company for as long as you possibly can prior to raising a round of funding (IF you have to raise one at all), you’re going to get a WAY better deal when the time comes, AND you’re going to be a lot more likely to use that money wisely.
As a business mentor for MentorMojo, I spoke on this topic in more detail here:
Don’t get me wrong – I’m not anti-VC money. In fact, I’m a huge advocate of it under the right circumstances.
Here are 4 instances where raising funds may be a very bad idea for you:
If you’re a new founder, chances are you’re a combination of smart, hungry and clueless. We all were – and it can be a profound asset for us in the early days. As in anything, no matter how predisposed you may be to success, there are going to be some hard lessons you need to learn before you’re good enough for the next level.
I’ve had the privilege of living among a few different first-time founders who just raised a round of venture capital, and rather than allowing themselves to fail on a small scale by trying to leverage some creative financing and/or bootstrap things before upping the ante, they instead burn $1 million or more because they’re simply too green to know when they’re making good, informed decisions, or when they’re simply throwing money at a problem they’re not yet intellectually capable of solving on their own.
Most founders start their first business – or even their first couple – because they had what they believed was a good idea. Every time they think about it, they get so fired up to the point where they take the leap, and soon begin investing time and hard-earned money to make it real.
What they soon start to realize is that an idea is only good for one thing: to spark the very first action. However, as you move forward, you’ll find that your success will not come from any one person’s idea – even if it’s your own. After all, you are only one single plot on your overall customer graph. If you want to grow and move forward, you have to look at and adapt to the overall patterns in the feedback you gather from your target customers, and allow your product or service to evolve as a result.
If you can begin doing this even before you build anything at all, you’ll find that you’ll be able to craft a solutions that your customers may even finance themselves through pre-sales and early-access discounts – negating (or at least prolonging the time before) the need for outside funding.
Start a successful company, no matter what it is, could be one of the more difficult, confusing and anxiety-ridden journeys you ever embark on. Every single founder is going to have terrible days where it feels like the walls are closing in around them. These moments are the ones that separate a successful founder from one who cracks under the pressure.
Regardless of how mentally tough you THINK you are, you’ll be a lot LESS tough if you’re only in it for the payday. We all love money, but as strong of a motivator as it can sometimes be, it’s almost never strong enough to kick a struggling founder into gear. Your customers will also sense when you’re only in it for the money as it’ll be a lot less about their ROI and a lot more about yours. Soon after, they’ll run for the hills.
That said, if you’re instead intensely passionate about solving the problem your product or service has set out to solve for your customers and you absolutely love living and breathing what you’re working so hard to create, you’ll be a lot more likely to weather the storm and move forward. Your customers will also gravitate to you – so by focusing on helping them, they’ll help you in return.
Your team’s implementation of your concept or company strategy, not your concept or strategy itself, will be what determines the success or failure of your brand. However, new founders often justify hiring their friends – or friends of friends – because they both don’t know how to find and recruit talent, and they simply want to work all day with their friends.
Most of these new founders then soon realize how tricky having a prior friendship can make an employer/employee relationship. While they can succeed in some rare cases, they’re nearly always much more complex in nature.
Instead, forego hiring friends and personal connections and instead focus on educating yourself on how to recruit great talent. Embrace the “hire slow, fire quick” mantra, and never raise a round of funding until you have a great founding team comprised of passionate, proven individuals.
Every single investor will ask you about your team as they know how important it is for you – and you need to ensure this is one of the first things you address before walking into a room expecting VC money.
In my humble opinion (after starting, bootstrapping, scaling and selling 6 tech companies in the last 6 years), there is only one and only scenario where raising venture capital is appropriate:
When you’ve built a small, strong team with proven track records who have put together a minimum viable product you’ve crafted through extensive feedback sessions with your target customers (many of whom are currently using and paying for your product) and you’ve got a well-researched plan on where you’ll target more customers, how much it will realistically cost, what you’ll need build next, and what a realistic exit strategy will be for both you AND your investors.
Oh…and you have discovered, after doing all these, that you actually NEED outside funding to scale your business (in many cases, you no longer will).
If you don’t have ALL of these, keep bootstrapping!
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]]>5 Effective Ways To Raise Money For A New Business You may have a winning business idea, but unless you can arrange for the right amount of funds it mostRead More
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]]>You may have a winning business idea, but unless you can arrange for the right amount of funds it most likely will not transform into a successfully scalable venture in the 5 plus years to come. The question is – where do you get the money from? Well, there is always the bank loan; but it’s the hardest to get for a new entrepreneur.
How do you manage to raise money for a new business? Here are 5 of the most effective ways to do it. Remember though, you may have to mix and match all or a few of them to make it work to your advantage.
Self-funding is often the only option for a new entrepreneur, as financial institutions make it difficult for them to get a loan. Liquid assets aren’t the only option though. You can leverage your other assets to raise the necessary money.
It can be anything – downsizing to a smaller home, selling off your luxury car, selling off jewels, and so on. You can also take out a loan against your home, your savings account or even your whole life insurance policy.
While banks will ask for business plans, financial projections, and collateral before they give any loan, you may not have to face any such hurdles when you decide to borrow from your close ones. But it’s easier in theory than in practice.
You may not have to pay any interest (or even if you have to, it’s usually quite low). But make sure you get every detail in writing. And also make sure it is a loan, and you don’t give away a legal stake in your business to everyone.
If you can convince your suppliers to work with you in such a manner that you have a fixed period of time before you need to pay for the supplies, things can work out. It works in the same way for established businesses.
But it isn’t easy. You have to provide suppliers with a good business plan, financial projections, collateral, and any other documents they ask for to make it work. Once you have the agreement in place, you will have a fixed time before you need to pay them.
These are successful entrepreneurs who can help you get your business on track. But remember, it’s not a loan; it’s an equity investment. So, you have to hand over a slice of ownership to them when you get their money.
The advantage is that you don’t need to fret over regular payments or interest rates. But on the downside, you may have to share the authority over your business. And it may be a little difficult at times to ask for approval from every investor.
Certain companies specialize in finding lenders for small businesses. All small business loans can help you find the funds for your new venture. But you need a business plan, financial projections and some money for the startup.
Online lending sites are good places to get loans for your small business too. But they are unsecured loans. And it’s essential that you scrutinize every detail, especially the fine print, of the loan agreement before you sign on the dotted line.
You can also check out the loan programs available from the government to identify possible opportunities to get adequate financing. If you are eligible, it can take out one of the biggest hurdles in creating a successful business – startup costs.
Venture Capital by Elaine and Kaiwen Leong
StartupLand by Mikkel Svane
Everyday Entrepreneurs by Ken Horn
Do Cool Sh*t by Miki Agrawal
The Startup Survival System by Kurt Won
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]]>A summary of things you should know about Venture Capital according to Elaine Leong: Introduction In this episode Elaine Leong takes a deep dive into her and Kaiwen Leongs’ book,Read More
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]]>In this episode Elaine Leong takes a deep dive into her and Kaiwen Leongs’ book, Venture Capital where she teaches you how to raise funds for your business startup.
In her book, Leong shows you how to avoid the mistakes most businesses make and shares some secret tips and tricks to taking your business to the top when it comes to funding. The goal of the book is to bring you into the mind of successful venture capitalists to shape your experience in growing your business.
This book is perfect for entrepreneurs trying to raise venture capital funds and need real-life financing advice from experienced venture capitalists and angel investors.
Kaiwen Leong and his colleague Wenyou Tan have the experience in helping others and the information is given in a way that is really for the absolute beginner.
If they are new to this I think they should read it from front to back. But if they have some experience I think they can jump in and out based on the chapters that they feel are most relevant to them.
If I had to choose one principle I would choose one from one of the case studies that we gave. This principle basically teaches you that you can get anything you want if you are creative enough about it and put enough effort into it.
Each chapter in this book is broken up into three parts. The first part is the appetizer which is just a brief overview about what the chapter is about.
The second part is the main course which is the meat of the chapter and gives advice on the topic that we listed in the brief overview.
The third part is the dessert portion and this is personal stories that we’ve come across and these tell specific lessons that are tied to the specific chapter itself. We find that people enjoy the dessert section the most simply because experience is one of the things you can’t buy. Apart from that we have a section called silverware which is geared towards those who are not so familiar with financial and entrepreneur terms. Some people only tell the success stories but we believe that it is equally important to inform the reader on what not to do because avoiding the mistakes is almost as important as doing the right thing.
In each chapter we have categorizations of different entrepreneurs. The first one is about the topnotch people who actually make it to the top.
The second category is the in-betweeners who are just average entrepreneurs. And the third category is the no hope entrepreneurs and these are entrepreneurs who do terribly.
We tried to structure the book in a way that is intuitive to a beginner. So we start off with what you need to get to the top. After this brief introduction to Venture Capital we launch into the tools that you need which includes how to give the elevator speech and how to write a business plan.
We hope that Venture Capital will really help beginner entrepreneurs understand the whole VC landscape better.
“Think creatively and put in a lot of effort and you will get something out of it.” – Elaine Leong
I graduated from Princeton last year. I have some experience in investments, division, and now also in some multinational banks. I have written a lot and also co-authored six different books so far.
Kaiwen and I’s first book was Singapore’s Lost Son and that was a biography about his life, how he made it from a drop-out to a millionaire Princeton PhD holder. Kaiwen was a social entrepreneur and created social enterprises to help the underprivileged but also make it sustainable. Before he chose which underprivileged group to help he did some extensive research and found out that the people who need the most help may not be the people who first come to mind. People who do need help and are not receiving it were actually ex-convicts. And what he found was that these people were making a lot before through illegal means and they were also used to being in a position of authority. He decided to train these people and teach them how to be entrepreneurs and help channel their energy to be productive. When the success stories from this project hit the newspapers people started approaching him and expressed interest which is how the book started.
Singapore’s Lost Son by Kaiwen Leong
Buy Venture Capital by Kaiwen Leong and Elaine Leong on Amazon today
Follow Elaine Leong on Facebook
Download the full transcript here (coming soon)
Listen on iTunes, Stitcher , and SoundCloud
Related books: Zero To One by Peter Thiel and Blake Masters | Show Me The Money by Alan Barrell | The Responsible Entrepreneur by Carol Sanford
Relevant advice and tips: Top Financial Mistakes Entrepreneurs Make When Creating a New Business
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