Startup Funding — The First $50K
One hundred & fifty.
That’s the number of founders I have the pleasure of meeting each year (my job is pretty cool).
Of those 150, I’d estimate that around 85% are in the earliest stages of starting a company. No revenue, some idea of how they will make money, limited traction, early MVP.
Except in rare cases (1%-3%) they all have one thing in common — the need for funding to move the needle forward. Startups need money, we’ve talked about this.
These Founders are often left confused when I break the news that it’s actually quite difficult to raise the first $50K, especially from non-repayable government sources — and I don’t blame them. After all, both Federal and Provincial governments have a focus on innovation and growing an entrepreneurial ecosystem, right?
Yes, they do. Both levels of government pour tens of millions of dollars into the innovation economy in support of entrepreneurs, but it isn’t “free money” nor should it be.
More and more these funds are moving to a model that requires startup founders to have significant skin in the game before coming to the table with money. Does this make it more difficult to raise money as an early stage founder? You bet it does, and I think that’s a good thing.
So who is responsible for the elusive first $50K?
Angel Investors? Not likely, unless you can show some traction.
Government Funds? In some specific cases, perhaps. But free money to do as you please with? Nope.
Founders. Founders should be responsible for the first $50K.
Think critically — if someone approached you with an “incredible investment opportunity” that’s “sure to make money” if you “get in on the ground floor” but hadn’t invested a dollar themselves would you buy in?
In the early days the founding team are often (read: usually) the only people in the world that believe their idea will make it. That’s why they’re startup founders — they believe in themselves and their idea more than anything else. That’s a required quality of being an entrepreneur, if you don’t have it then it’s probably time to find a job.
Why should it be the responsibility of anyone other than the founders to take the initial risk and put a few bucks in to test an idea?
The most successful startup teams I have worked with all have one thing in common — they took a risk — that doesn’t always mean they physically removed $50K from their personal bank account to fund their startup (although some did). Many of these risks included:
- Quitting a full time job
- Personally guaranteeing a business loan
- Running on credit in the early days
- Borrowing from family
- Launched a crowdfunding campaign (far from risk-free)
Once the founders have taken a risk other funding parties are much more likely to make the jump with them, but asking someone else to take all the risk for your crazy idea is just that — a crazy idea.