Last week, I had lunch with a young entrepreneur who had just read The Silicon Lathe and gave it a great review.
In his career so far, he's had many similar experiences - companies mismanaged, disruptive technologies killed by larger players, unethical CEOs, people who steal what they want rather than building it, and even patents stolen. I'll likely incorporate some of his experiences in future novels.
His current venture ran into several of these problems (including technology theft), but he has persevered and landed his first round of significant funding with his second on the way. He has over 30 employees with product placed in several Fortune 500 companies and some government entities.
He did bootstrap his company, however. Initially, he self-funded development of a security product on his own time. He then discovered that Stanford Research Institute (SRI) had complementary technology. Seeing a nice fit, he worked with SRI to productize their offering mostly on their nickel. Much like customer funding, finding a university or research entity that would like to see their work turned into commercial product is a great way to initially fund a product.
Some of his initial customers were investors in Private Equity Funds and once he had proven technology in a commercial environment, they helped him raise money from one of these funds. In his case, he was quite lucky as the terms of the deal left him with much more of the company than a Venture Capitalist (VC) would have.
In addition, because the customers were 'invested' in his success, they have been helpful without interfering, and are not looking for the quick exit that many VCs expect. They're looking for product that meets their unmet needs.
Hopefully you're seeing a recurring theme here. Bootstrap, bootstrap, bootstrap. Avoid outside funding as long as possible, and avoid VC funding until it's essential. If you have a sustainable business model, you should be able to launch your venture with a combination of customer funding and limited private investment (of which some would be your own).
You should be able to build an strong balance sheet that will put you in a solid position if you ultimately need significant investment to expand the business, accelerating a working model.
I recently ran across an interesting blog by David Spinks (CEO of Feast) called 7 Signs You're Fundraising Too Early. The author is an entrepreneur who declares himself guilty of trying to raise funding too early. I strongly suggest you read his blog, but if you can't, here are some of his 7 signs:
Bottom line, if your business plan is not clear and you're not on track, you'll start acting desperate - changing your business/product plans with the investment winds, struggling to look better than you are, and perhaps not understanding why your friends and advisors aren't willing to commit their own funds.
You're not ready for investment because you need to get your house in order first.
As mentioned above, significant funding should be used to accelerate your proven business.
In my next post, we'll talk about VC funding and what to avoid if you can. Then we'll come back to alternative funding mechanisms.
In his career so far, he's had many similar experiences - companies mismanaged, disruptive technologies killed by larger players, unethical CEOs, people who steal what they want rather than building it, and even patents stolen. I'll likely incorporate some of his experiences in future novels.
His current venture ran into several of these problems (including technology theft), but he has persevered and landed his first round of significant funding with his second on the way. He has over 30 employees with product placed in several Fortune 500 companies and some government entities.
He did bootstrap his company, however. Initially, he self-funded development of a security product on his own time. He then discovered that Stanford Research Institute (SRI) had complementary technology. Seeing a nice fit, he worked with SRI to productize their offering mostly on their nickel. Much like customer funding, finding a university or research entity that would like to see their work turned into commercial product is a great way to initially fund a product.
Some of his initial customers were investors in Private Equity Funds and once he had proven technology in a commercial environment, they helped him raise money from one of these funds. In his case, he was quite lucky as the terms of the deal left him with much more of the company than a Venture Capitalist (VC) would have.
In addition, because the customers were 'invested' in his success, they have been helpful without interfering, and are not looking for the quick exit that many VCs expect. They're looking for product that meets their unmet needs.
Hopefully you're seeing a recurring theme here. Bootstrap, bootstrap, bootstrap. Avoid outside funding as long as possible, and avoid VC funding until it's essential. If you have a sustainable business model, you should be able to launch your venture with a combination of customer funding and limited private investment (of which some would be your own).
You should be able to build an strong balance sheet that will put you in a solid position if you ultimately need significant investment to expand the business, accelerating a working model.
I recently ran across an interesting blog by David Spinks (CEO of Feast) called 7 Signs You're Fundraising Too Early. The author is an entrepreneur who declares himself guilty of trying to raise funding too early. I strongly suggest you read his blog, but if you can't, here are some of his 7 signs:
- You start adapting the product based on the fundraising landscape.
- You feel you have to invent traction.
- You're raising survival money at the seed stage.
- Friends and advisors give you excuses.
Bottom line, if your business plan is not clear and you're not on track, you'll start acting desperate - changing your business/product plans with the investment winds, struggling to look better than you are, and perhaps not understanding why your friends and advisors aren't willing to commit their own funds.
You're not ready for investment because you need to get your house in order first.
As mentioned above, significant funding should be used to accelerate your proven business.
In my next post, we'll talk about VC funding and what to avoid if you can. Then we'll come back to alternative funding mechanisms.
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