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Why Business Funding Can Be a Complete Waste of Time

14 Feb Why Business Funding Can Be a Complete Waste of Time

We work with many different types of business. From the extreme start-up to large mature enterprises looking for a way to transition ownership from the founding partners. We’ve just about seen it all. Having seen the entire value-chain from start-up to final divestment, there is one blaring roadblock that can cause sleepless nights, ulcers, and ultimately prove a disastrously huge waste of time—fundraising.

A Few Reasons Fundraising Wastes Founders’ Time

  1.  It takes ALL your time. Running a business is hard. You’re constantly having to attempt to sell your product and/or service–convincing people to trade their money for what you’ve created for their money. Now take the difficulty of selling your product/service and think about trying to sell yourself to investors promising them returns on a product or service that may not even exist yet, has little to no traction and is wholly untested. You become a salesman, not to your product or service, but to the idea of your product or service. In the early stages, even if you have IP protecting you, any time spent on fundraising is less time spent on focusing on profits and building the business. And since you’ll likely be spending all your initial time fundraising, you’ll not be working on the company. You’re trading your time fundraising for time that could be spent on building a great company. It’s a sad zero-sum game trade-off. 
  2. Tire-Kickers. Most of the people who do early-stage deals will not readily invest. There are hundreds of angels, VCs and other tire-kicking investment groups who like to hear a good idea, but then move on. Unless you already boast hockey-stick style revenues, the tire-kickers will keep asking questions and lead you along. They’re like the hot date that makes you think they’re into you, but ultimately you get forgot about when they get bored and the music stops playing.
  3. Multitasking: Don’t Take Your Eye Off the Ball. I read a great article on multitasking the other day.  The sum: it doesn’t work. When we lose focus, moving from one task to another, we ultimately lose. We end up being mediocre at many things instead of extremely brilliant at the task we should be focusing on. In the realm of fundraising this means that if you think you can run your new business, a side business or a full-time job while trying to raise money from angels, VCs and others–think again. It ain’t happening.

Unless you’re friends with a wealthy fool who trusts and adores you enough to provide you with funding so you can pursue your dream, then you may want to consider bootstrapping.

Benefits of Bootstrapping

Personally, eating Ramen and rice for 18 months while you attempt to get your company off the ground is not a fun lifestyle, to say the least. However, there are a number of benefits. First, you stick to what is important. In this case that means getting a product ready to launch, getting it out the door and getting customers with cash flow.

Second, you don’t give up equity. Many entrepreneurs forget that raising capital has a very high price. They’re called vulture capitalists for a reason. They’ll take their hunk of flesh, usually in the form of equity.

Finally, bootstrapping makes for great stories when you finally make it big. “Remember when we were in that basement of that house we rented and we were arguing over stupid things like logo design?” etc. etc.

My personal take is only go after funding as a last ditch option. If you want to start a business, save some money, gain a reputable skill and start a company on your own with your savings and your skill. That way when a huge liquidity event occurs down the road, you don’t have to give a hunk of flesh to the VC.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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