It is tempting to take seed funding to run your start-up. Why not? Isn’t it just easier to work when you have money in the bank and don’t have to worry about where the next wage bill will come from? Well, it is not quite that simple.
On the outside, fundraising is quite exciting. The extra money, the TechCrunch article, and 5 seconds of fame in the tech community. Well, it is much beyond that. Many entrepreneurs have found themselves wishing they hadn’t taken that extra funding. In this article, I will be showing you reasons why taking investors’ funds might not be as attractive and necessary as you think.
It Costs Precious Time and Energy
Raising funds is a pretty elaborate process. You have to constantly fine-tune your pitch deck, attend events to “run into” potential investors, and consistently meet interested investors. Doing these and the many other tasks related to fundraising will cost you precious time.
Now, most entrepreneurs don’t even end up getting the funds. And even for those who do, the funds do not arrive in their bank accounts for another couple of months.
This is a lot of work, considering that, as a start-up, you are already investing heavily in creating and perfecting your product and also finding your customer base. So, ask yourself, can you handle the extra workload? Are the funds worth taking time and effort away from working on your product?
Investors are not benevolent philanthropists. They are business people, looking to make as much profit as possible. They give you funds in exchange for equity in your company. This is not altogether bad but can easily become so.
One prime attraction entrepreneurship holds for founders is the independence and freedom to make decisions, especially concerning product direction. Giving equity to investors can take that away. You might find yourself being a minority shareholder and as such, less voting power and less freedom.
I am not saying equity dilution is entirely bad. Fundraising is necessary for some start-ups. However, it is important to properly structure your fundraising strategy. Do not take funds that you do not need. And with the funds you do take, be as efficient as possible.
Your Intended Expenses may not be Necessary
One reason why many founders find themselves raising more funds than they set out to, is they have a load of unnecessary expenses. Investors’ funding is supposed to keep your start-up going until you reach profitability. Until you reach profitability and can afford your expenses, you should cut out excesses from your budget.
The goal is to take as little investor funds as possible. If the funds that you want to raise are for expenses like bigger office spaces, higher salaries for you, you don’t need that. Investors’ funds are supposed to be spent on critical product development not paying your rent.
Cutting off these unnecessary expenses will help you avoid wasting precious time and energy on fundraising. It will also preserve more equity for you.
Bootstrapping will help Attract Investors for your Future Endeavors
The trend in the tech ecosystem is for founders and cofounders to start multiple companies one after the other. The more businesses a person has successfully started, the more likely they are to get investor funding.
Evaluate your needs. If you do not need funding, there is no need to take it. Put in the work, build it yourself. You will be rewarded accordingly. When you reach IPO or acquisition, having 100% equity will be worth the effort.
And then, when you move on to build another company, investors will more readily listen to you.