Ok. Let me be frank. This article is more of an outburst than gyan.
Not that I’m some great startup guru or anything, but in the past few months I have been discussing concepts of various entrepreneurs to give my 2 cents on what will be required to make it work.
Most discussions at some point of time come to the inevitable like question – “Will my concept get funding?”
This question really frustrates me, not because it’s a stupid question, but because I too asked the same question not very long ago and two startups later I now realise how useless the question is.
I’ve listed the assumptions which are the root cause of this question. Please feel free to add more.
Myth 1: I have a great concept, now show me the money (a.k.a Funding)!
Most founders (and when I say most I mean 90%) think having a great idea is enough to get funding. Unfortunately this may only happen if you are Steve Jobs, Guy Kawasaki or at the very least have some past entrepreneurial experience.
In reality, investor money comes in only after you have proven that there is a market for your product. The best ways to prove this is to actually come out with what is popularly called an “MVP” and make it live. If it works and you make money everything else will fall in place.
The time required to test this depends on product to product. Just ensure you have enough money during this period + some buffer. Don’t go around running for investors for this. It’ll be a big waste of time both for you as well as them. This is called runway money and usually it’s done by those close to you, since they will be the only ones who can trust you at this stage.
Myth 2. “Funding will guarantee success” OR WORSE “I got funding = I’m successful”
Success has got nothing to do with how good brilliant the idea is or the fact that you got ‘Funded’. It’s more about the effort, drive and direction of the team has. A good entrepreneur can make an average idea make money and a bad entrepreneur can screw up the greatest of ideas.
Funding and success are totally unrelated. Funding is neither an indication nor a prerequisite for success.
Want proof? Both my startups Qpeka and My Cute Office are performing much better than many of the well funded competitors. And the reason is simple. We focus on the problem and not the funding.
Myth 3. I have investors who are interested (=ready) to invest in my venture
What bugs me the most is the statement, “I already have an investor who is ready to invest in my venture.” In most cases the reason they say this is because some investor asked for a copy of the presentation. There is a vast distance from being interested and actually investing. It’s like me saying I like a girl and then actually marrying her! Just please don’t make a fool of yourself by saying this till you have received a term sheet.
No investor will say they are not interested. But that does not mean anything. The only time you can say they are ready to invest is when you have signed a term sheet with them. (Even after that there is a risk they may not invest)
A few more tips:
- The best source of funding is revenue from the business itself. So have a great revenue strategy in place. Revenue-less startups like Whatsapp are really rare and need a fanatical fan following to become successful.
- Always remember “Money always chases those who need it the least!”
- Funding is meant to remove bottlenecks which block your growth not to pay your salaries.
- No one gives a shit about your “idea”, execution is the key.
- Get a good mentor who has successfully started up and don’t ignore what he says. Most probably he will be correct.
- If you run out of runway, take the saner option and bail out. In many situations it can save you a lot of heartburn.
- Always focus on building a good team even if it means giving out a lot of equity. 40 % of a $ 1 bn company will always be more than 90% of $ 1 mn company.
So long story short, don’t chase the khayali pulav of “Funding”. If your business is successful, investors will chase you. But making a successful business is extremely difficult and that’s the reason funding is too.