Your startup probably sucks and how to suck less.

Startups are hard, getting investment in Mexico is hard, get over it.

Being into the mexican startup scene I often read tweets like the next ones:

“In my country (Mexico) there’s no such a thing as early VC’s ($100k-$1M).”

“There’s only seed funding in my country.”

“My startup can’t go on because of the lack of investors.”

People whining that their startup didn’t made it to “Series A round” because of the lack of investors in Mexico. Tweet after tweet complaining and trying to get the attention or sympathy of others. But they don’t stop to think: “Hey probably my startup isn’t good enough for ‘Series A round’”.

There’s a misconception that companies need investment in order to grow, but what you need really need is clarity about that capital.

Remember that investors want to deal with money and scaling problems, problems like: “I can’t handle orders anymore, I need money to fulfill these customers requirements” or “ I just got a $2M contract, I need money to make it work”

Not problems like: “I need more people in order to get more money to pay more people”, “I need investment because I’m 1 year old and it’s time to.” or “I need investment to feel progress.”

Probably this search of sympathy is not exclusive of people dealing with startup problems, but a general human reaction that people have when dealing with life struggles like divorce, debts, anxiety, depression, or even suicidal thoughts…

Sometimes the only thing left is to work harder, acknowledge that nobody cares about your problems more than you do, except maybe your family, but every individual has his own problems. Your mom has problems, your dad, your brother, sister, spouse or significant other have their own problems.

Don’t waste your time trying to get people’s sympathy. If your problem is money, that’s not gonna get you out of the hole.

If you’re in a very crucial point and you really need the investment in order to go on, don’t just search inside Mexico, there’s more people out there.

How to suck less?

I didn’t want to leave this as a public scolding, so I asked Cesar Salazar (500 Startups Mexico) his opinion and advice on this topic:

“Many entrepreneurs seek to rise 500k in seed and at the same time they don’t get what it takes to make a good business. Investors need to make at least $5M (having only 10% of the company equity)so the company value after 5 or 6 years must be of $50M, in order for this to happen the company needs to valuable stocks.

If this value is not IP, a massive user data base or an amazing team then the only thing this company has it’s cashflow.

Said so, the company value must be between $5M and $10M of EBIDTA/year, that means: More sales: (maybe $15MM and $30MM on a typical e-commerce company).

If the average ticket price is $100 then it needs to sell 300,000 tickets/year to make this; in other words 1,000 sales/day, each of $100 in 5-6 years.

This just to return the minimum that an investor needs. Only 1/10 investments will return the investment.

Capital matters, it’s almost impossible to escalate a business as fast as we want if the only thing you have is the cash flow from your last period. Capitalism works, it’s about making money work for you in the most efficient way. Capitalism is not about working hard, is about working hard using capital to leverage growth.

Having capital allows you to run operations on scale, making your costs per unit drop down so you can face competition, capital allows you to shrink your utility margins to 0 or even sale negative margins. Sometimes this is the diference for customers to buy from you or someone else.

On e-commerce, this translate into better prices or free shipping, and a key for customers to prefer your shop over their trusted shop.

In SaaS, this translate into a 30 or 60 day free trial for your customer, follow up calls or customer support even before watching a dime in your bank account.

If you can’t do this you become a victim of the statu quo, you’ll keep asking yourself: Why others can and I don’t?

And since you entrepreneur don’t get all of this, you end up blaming everyone: Your customers, the INADEM, your cofounders, 500 startups, Naranya Labs, Wayra or even your parents for not rising you on Silicon Valley.”

TL;DR:

Investment is very important, but before you go after it you must really understand if you really want it and how will it help you to reach your goal.

Life’s hard, quit whining, work your ass off in a smart way.
Less tweets, more work.

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Thanks for the feedback and support on this post: @jcmrgo.