Because it’s awkward explaining where $3 million dollars went. No?
Getting venture capitalists to invest in your startup is an exciting prospect. For one, it validates the precious idea you’ve spent hours trying to put into words over countless pots of coffee. It also means you can focus solely on growing your business without the stress of worrying about generating enough revenue to pay your bills.
However, it’s the lack of this stress that very well might keep you from paying attention to, arguably, the most important part of your venture ‒ being profitable.
Whether it’s $3 thousand or $3 million, here are a few questions you should ask yourself before running your startup with ‘other people’s money.’
Can you answer the simple question?
Unless you’re launching a business that has high entry costs (like a restaurant or an asteroid mining complex); it’s best to stay away from external investors in the early stages of a venture.
This is the time to see whether or not your idea can sustain itself on its own. Venture capital is not a substitute for a business model and it is easy to confuse one for the other. So before you go kick-starting and picking out a suit for the big VC meeting, can you answer in one sentence the following: How does your business make money?
Why can’t you achieve your goals without an investment?
Think hard about this. Do you need the investment to grow or do you need it to survive?
If it’s the latter, perhaps the answer to your problems isn’t financial. It’s structural. Now is the time to figure out if your idea isn’t financially lucrative ‒ if so ‒ end It! There is no failure in entrepreneurship, only opportunities to learn from mistakes and integrate them into future ventures.
How much control are you really willing to give up?
Say your business is self-sustaining, profitable and it is indeed time to expand ‒ should you?
Like most entrepreneurs, their startup is their love. However, when you accept venture capital, you’re about to begin sharing joint custody. If your aim is to grow and sell the business, this might be ideal.
However, if you’re looking to hold onto to your venture for the long haul, a slow growth method might be more appropriate. Although you may get lucky and find an ‘Angel Investor’ who pats you on the back and sends you on your way, generally, you’re going to find someone who wants something in return. That’s either equity, a cut of the profits or ‒ managerial influence.
So unless you’re very confident you can get people their money back, stick to the bootstrapping method. You’ll sleep a lot better.
This article was first published on Monster.com.