Why Most Startups Shouldn’t Seek Investment


JCT The Downsides of Raising Money for Your Startup image_funding_e1336740951768

A client said to me last week that if I was so against startups raising capital from investors, why did I always blog and tweet about pitching investors. Fair point, made in response to my attempt to encourage him to bootstrap rather than pursue Angel Funding.

The current bubbling market and spate of tech IPO’s seems to have increased the desirability of getting funded by Angel Investors or Venture Capitalists. While investor funding may be the right option for some startups, these instances are by far the minority of cases.

Why You Don’t Want Investment

There are several compelling reasons not to seek investment from Angel’s and VC’s:

1. You lose control of your startups destiny. This is your life and your startup. While you should welcome the advice of seasoned investors, you always want to retain the option of rejecting it.

2. Fundraising is time and energy consuming and often demoralizing. No matter how good your business or investor pitch, securing investment takes months, sometimes years. For the vast majority, they will be unsuccessful. No matter how determined an entrepreneur you are, frequent rejections are demoralizing. It is far better to spend that time and energy growing your startup.

3. Far better to receive 100% of the profits. The old adage that 50% of something is better than 100% of nothing only holds true if it is impossible to launch and grow without investment. Investment taken when it isn’t really needed is simply a short-term booster, which is ultimately replaced by long-term pain.

A Better Well-Trodden Path to Success

There are many startups all over the world who have successfully bootstrapped their way to millions. As you may have seen this week, the team at CSN Stores bootstrapped their way to $380 million in sales in 2010, before deciding to take $165 million in Venture Capital.

37 Signals have an inspirational series on their website ‘Bootstrapped, Profitable and Proud’ which profiles companies that 1) have $1MM+ in revenues, 2) didn’t take VC, and 3) are profitable.

And lastly, Dileep Rao, in ‘Bootstrap to Billions’ documents in some detail the journeys of entrepreneurs who have built their goliath companies from scratch.

Embed Bootstrapping in Your DNA

For bootstrapping to have any meaningful impact, entrepreneurs must adopt and implement bootstrapping tactics and strategies across the whole of their business. Bootstrapping will not work where only one or two strategies are employed on an ad hoc basis. Startups who have bootstrapped their way to millions or even billions, regard their bootstrap plan with the same importance as their business plan. Without a proper bootstrap plan that you execute, your business plan may simply end up as a record of your aspirations.

Reprinted by permission.

About the author: Martin Soorjoo

Founder of The Pitch Clinic, Martin Soorjoo is a pitch strategist. He coaches entrepreneurs world-wide, helping them launch and raise funding. Prior to founding The Pitch Clinic, Martin spent 15 years as a former award winning attorney. He has worked with start-ups and investors, including senior investment bankers, venture capitalists and angel investors. During this period Martin raised several million dollars, including negotiating one deal worth $75 Million. This experience has equipped him with unique insights into the challenges start-ups face and how investors make decisions. He is a Certified Master Practitioner of Neuro-Linguistic Programming (NLP) and an expert in body language.

Martin is the author of ‘Here’s the Pitch‘.

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