Startups, Raising Funds vs. Making Money?
Early stage technological startups are typically founded by highly talented individuals; generally speaking, by at least one technically-oriented brilliant founder.
While the question in the title “Raising Funds vs. Making Money?” may not make sense since both are valid tracks that can be adopted separately or in conjunction, the main issue remains the timing of such decision that will determine the faith of the recently born startup…
My personal opinion is that early stage B2B startups (the core of my professional activity), beyond proof of concept or MVP, would be better off — both in the short & medium term — if they were to become self-sustained through the traditional commercial model, the one that is put simply: based on selling with a markup and growing out from the value the product or service generates to its customers.
Let me explain!
The commonly accepted startup growth model is based on raising money for speeding up time-to-market and eventually, some day along the road, hit the jackpot with a miraculous exit. It is no secret that only 10% of startups survive after two years of existence and very few make it to the promised land, putting aside the lonely planet of the world’s unicorns. For early stage, Raising Funds may mean using your own savings, or getting initial angel support from friends and family; but at some point, almost inevitably, as your traction grows, appears the temptation of accepting to join valuable acceleration programs or investment from individuals or companies that will eventually take a relatively high stake of your business even before it takes-off. By the way, it may be the right decision! My claim is that it’s all about the right timing, the perceived value and available alternatives (if any).
There are alternatives!
If you believe your product or service indeed responds to a market need or actually solves a problem for the masses or for a niche, if you are convinced your solution has potential, then you must first prove it! Start by proving it to yourself and then push forward by disrupting the standard startup acceleration model by simply building a sound sales pipeline, by conquering the market by your own means, by developing sales channels, by bringing about partnerships and alliances and by growing organically through healthy sales!
What will you achieve by doing that?
- Hands-on market experience for improving your value proposition, go-to-market and positioning.
- Users’ feedback for improving your product or service.
- Learn from commercial insights, market, pricing and competition.
- Raise your startup valuation! and improve your negotiation position for whenever you decide it’s time to raise funds.
Alternatively, if your growth has been sustained by healthy economics, take your business to the next level. There’s no reason why you won’t be able to achieve it through the reinjection of funds from your own sales!
My two cents: trust your talent, ask for advice, don’t rush towards raising money, invest all your energy in first making money, if it worked for you, I can assure you no investor will turn its back towards healthy KPIs!
About the author: Roni Grosfeld is Founder & CEO of inlat — startups go global! a Commercial Accelerator Boutique for early stage potentially high-impact startups that have a service or a product for the enterprise segment (B2B and/or B2B2C).