Stephanie Sims
Oct 13, 2015 · 5 min read
Photo by Thomas LeFebvre via Unsplash

Hint: It has nothing to do with your business plan, your alma mater or your (I‘m sure incredibly) vast knowledge of whatever the latest hot coding language is.

If you’re building a business, it’s not because you need somewhere to go every morning — it’s because you believe that you can make a great living doing something you love while having the freedom to do it your own way. Regardless of the type of startup you have (or dream of having), though, you know that you’ll need some money to realize your dream.

I am all for you finding the money you need to build your business, and making sure that your dream (or more precisely, your control of your dream) doesn’t get crushed along the way. It’s what I help people do.

But one thing I wish I could tell almost every startup founder out there looking for money is this:

For 91.2% of you, there’s no reason to ever think about VC* funding again. It’s a time suck, a long shot, and ultimately, chasing VC money can be the death of your dream.

Although I don’t have statistics to back up that 91.2%, this I’m convinced of: almost every founder sees VC money as the Holy Grail of funding. It’s like New York — if you can make it with the VCs, you’ll make it everywhere.

Don’t believe me? How many articles have you read about multi-million dollar funding rounds or multi-billion dollar valuations in the last month alone?

Yep, getting VC money is an obsession. Being on Shark Tank, getting the headlines, the fame, the bragging rights…it’s heady stuff. Let’s face it, VC money is damn sexy.

Whether you admit it or not, I bet that you’ve fantasized about telling your friends and family that you just closed a $[insert dollar amount of your choice] Series A round. Even if you’re not entirely sure what a Series A round is.

But here’s the bad news: chasing VC money leads plenty of smart, hardworking founders to the brink of despair.

You end up wasting time and energy on a process that not only doesn’t get you funded, it saps your attention and (worst of all) your confidence.

Most people don’t realize that VCs (like every other industry on the planet) are subject to market conditions. When people with money to invest are looking for better returns (as they have been since 2009– if you want to learn more about the whys and wherefors, read this), they’re likely to consider investments that have more risk.

Investments like, oh I don’t know, startup businesses with a one-in-a-trillion or lower shot of becoming the next Google, Facebook, Uber, etc.

Which is great news for folks who make their living taking risks by investing their own (or other people’s) money into startups. The last 6 years have seen tons of money flowing into VC type funds, chasing a (supposedly) better return than they can get in the stock market, junk bonds or the other investment options they have.

And since those investors are expecting hefty returns on their investment, VCs have to invest that money somewhere. So it’s entirely possible that getting funded by a VC in today’s market has less to do with you and your company, and more to do with the need of VCs to invest all of the funds they’ve been entrusted with as quickly as possible.

Which all means that you cannot (under any circumstances) convince yourself that getting VC money makes you more likely to succeed.

In fact, the opposite is true. The reality is that around 80% of VC investments are going to fail. Some estimates place the number as high as 90%.

Sound unbelievable? Have a look at this article from Entrepreneur, a very interesting study based on CB Insights data from 2009–2014, and this excellent analysis by First Round of what’s happening in Series A (often the second) funding rounds.

What does this data mean for you?

As a founder, you have to face a very ugly truth. Getting funded by a VC (especially these days) is more likely to be the kiss of death than it is your ticket to the big time.

VC funding is an option you might want to exercise, not a seal of approval that you need to succeed.

Because what keeps your company alive isn’t getting funded just once, but having (hopefully) those same investors continue to invest in you down the line when you really need it.

Like when you miss your milestones. And you will miss them. Maybe not all of them, maybe not the most important ones, but nothing EVER works out the way you planned it. Deliveries — whether they’re protoypes, betas, or even physical products — are always late. There are always bugs or problems. Those customers who guaranteed they would sign up on day one are nowhere to be found when you launch.

Having enough money to not only to build your product/service, but to actually build a company that does what you’re passionate about while allowing you make a living or more — that’s what matters. And as the saying goes, Rome wasn’t built in a day — or with just one round of investment.

So what’s the real reason you won’t get VC money?

I hope it’s because you choose NOT to pursue it.

Face it, getting a VC to fund your company would feel really good, as would depositing a big fat check into your bank account.

But before you invest months of your life and (hopefully not too much of) your hard earned cash in pursuit of that check, be honest with yourself about whether an equity partner is best for your business.

And if it’s not, get off the crazy train. Do what’s right for you, not what’s going to impress others. After all, there are tons of ways to fund your business, but the truth is that most of them aren’t right for you.

You just need to find the one that is.

If you want to narrow down the field, take this free quiz that will tell you what type of funding is right for you right now.

Whatever kind of funding you pursue, believe in your company (and yourself) enough to be picky about who you work with and how.

And whatever you choose, I wish you much success!

*For the sake of simplicity, I’m lumping “professional” investors like angels, syndicates, and some (most?) incubators into the group of “VC money”. This isn’t to say they are all the same (they definitely aren’t), but for the purposes of this discussion, a “VC” is anyone who decides to invest in you because of the merits of your business — not because they changed your diapers or you loaned them money to buy their house a few years ago. To be clear, I don’t believe that all VCs are bad, but there are plenty of issues with the existing investment model that make this kind of investor wrong for a vast majority of founders.

If you enjoyed reading this and found it helpful, please recommend and share it.

The Bottom Line

The truth, the whole truth and nothing but the truth about #SmallBizMoney

Stephanie Sims

Written by

Recovering investment banker, champion of business owners, Frenchman's wife, mom of three. Because only you can really #KnowYourWorth

The Bottom Line

The truth, the whole truth and nothing but the truth about #SmallBizMoney

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