If You’re Looking To Raise Money, You Don’t Have A Business
Business has been perpetuated since ancient Rome and some of the earliest chartered corporations that were founded in the 1600's are still around today (Hudson’s Bay Company). The equation for business to exist is pretty straightforward “an organization or economic system where goods and services are exchanged for one another or for money” and that remains the same now. And if you’ve launched a startup, the identical rules apply. Capital alone is not the driver.
So, if you’re looking to raise money, you don’t have a business.
Some perspective. There’s tons (literally) of advice and wiseness available but it pretty much boils down to the same (few) basics.
You either have a product / service that someone is going to buy or a service people (a lot of them) are going to want to use for free and someone else is going to pay for to access this crowd. This apparently oversimplified statement pretty well delimits which way you’re going to move forward as Jeff Clavier lay’s out so well in Inside the investors mind.
If you’ve got a product or service that you’re aiming at selling right away, then you need to get it in people (customers) hands asap, whatever it looks like and however it works. Collect feedback, refine and reship. Ask for money, even if it’s in small amounts, the key is that if it’s worth something to someone, they’ll pay for it. And if you succeed at this? You’re in business.
If it’s something people are going to use, then you’ve got to do the same work only that no one is showing you the same type of commitment (purchase). But if these early users show other signs of engagement like how much they use your idea or getting lot’s of other people to join them, then you’re not in business but you might be creating something that someone else might covet.
I’m confronted with this quandary all the time, 80% of the startups I meet struggle to explain the ‘uniqueness’ their model to me, but the fundamental questions remain the same — do you have a business or don’t you.
This is when you separate the men from the boys.
If you have a business then you can get people to consider investment to help you grow. Show them what you did with the 100,000 € you scraped together and explain what happens when they fund 10 times that amount. This is called growth capital, a standard financial step and it comes after seed & startup funding.
When you don’t have a business, then the pitch is different — what will their financing do to make the value of their participation so appealing to someone else. It’s relationship you’re building at this stage, not a business, which is why venture capital is termed ‘high risk’.
Looking to raise money when you don’t have a proven business is understandably more difficult which is why we’re reading so much these day’s about ‘rejection’ (read Paul Graham’s excellent essay A fundraising survival guide).
Becoming a successful entrepreneur is about starting something that becomes a viable business, anything else is called uncertainty.