Fundraising? Be a Buyer, not a Seller

If you’ve ever raised capital before, or if you know someone who has, then you know that it’s not easy. It takes a long time, you get rejected a lot and it distracts you from your core business. And even for those who do raise, they often end up with investors or deal terms that cause issues down the road. For many, many reasons – raising capital sucks.

So, what’s the solution? Bootstrapping? No, not necessarily. I fundamentally believe that most worthwhile opportunities require capital. This is a fast-moving World. If there’s a great opportunity out there then someone else is going after it as well. So, capital can help give you an edge.

The question is when to raise. Most founders raise (or try to) far too early. Here’s the thing: At the early stage there’s tons of demand for capital and fewer sources. At the late stage ($10M+ revenue) the reverse is true. There’s very little supply of companies that make it that far. But there are tons of investors who want to fund those that make it.

What I have seen over time is that the pitches of those late stage investors sound pretty much the same. “Entrepreneur friendly”, “patient”, “flexible”, “value add”…. Everyone’s pitching the same story.

Ironically, I’ll bet when investors get together they say the same thing about all the early stage companies – that they are all pitching the same story: virality, mobile, inbound marketing, social (insert buzzword….).

Clearly the early and late stage capital markets are inverse Worlds that look something like this:

Screen Shot 2013-07-03 at 3.40.17 PM

 In my mind, it’s far better to be a buyer of capital than a seller of shares. While bootstrapping can only get you so far, the longer you wait before raising, the more choice you will have – making you a buyer, not a seller.

Remember, most startups fail. Investors know this. Investors may cause this in part, but that’s another story for another time. Even if you come through YC or another credible channel, you still have a high likelihood of failing.

Also, most things take time. Techcrunch would have us believe that you can exit big time in a few years. While there are some examples of this, they are very much in the minority.

If you’re just starting out and want to build a real company (vs. acqui-hiring yourself away), then settle in for the long haul. Make sure your partner / spouse knows you won’t be bringing home the bacon for a while. And patiently build your business brick by brick. If you keep doing this and prove that you can attract and keep customers and are doing so without capital, you’ll have investor falling over themselves to call you.

Be a buyer of capital, not  a seller of shares.