Why Entrepreneurs Shouldn’t Fundraise—Yes, You Read That Right
Most entrepreneurs consider fundraising to be the first and most crucial step to starting a business. A quick Google search will confirm—there’s no shortage of articles out there about how to raise large amounts of money for your startup, and fast.
But the notion that you need to fundraise to start a company can be misleading. You don’t.
In many ways, fundraising is actually antithetical to the entrepreneurial ethos because it limits your freedom to build the kind of company you want. And there are other ways to get your company off the ground instead of by giving it away, piece by piece, to venture capitalists who don’t necessarily have your company’s best interests in mind.
Ultimately, the point of entrepreneurship is to nurture your passion or idea into a viable (and sustainable) business—not to get a $35 million round.
Here’s what I mean:
Entrepreneurship is fundamentally about freedom.
If I borrow money from a friend, I have to pay him back eventually. And I’ll be thinking about it until I do, because I know he’s counting on it.
The same thing happens when you borrow investor money.
Most entrepreneurs got into the game because they were sick of being tied to their boss or company. They had an original idea they wanted to pursue without being tied down by someone else’s rules. When you’re getting money from VCs, however, it’s similar to being governed by your former CEO—and you lose some of that freedom.
VCs don’t necessarily share your passion. They just want to see big returns. When you’re dependent on investors, eventually, your company might stop looking like the company you started, and there’s not much you can do about it. You may even be booted from the company you started and be replaced by “seasoned management.”
If you want the freedom to run your company according to your own vision, know that VC funding will likely get in the way.
If you’re too focused on fundraising, you’re probably overlooking what’s most important.
I’ve founded a number of companies—some I fundraised for, and others I didn’t.
When I was launching my first startup, I tried playing the VC game. But things didn’t go as planned. We didn’t have a network yet and couldn’t get enough traction on our business to actually be enticing to VCs. And because we were so focused on trying to raise money instead of trying to build a product, we failed.
My third startup—my current company, Skiplist—was a success, largely because I wasn’t hung up on raising VC money. Instead, we focused first on building a product that mattered—in this case, thoughtful software, a set of processes and principles that ensure that organizations can make their projects successful. Once we nailed the product and services, people wanted to give us money. We didn’t have to ask. They were basically throwing it at us.
In other words, when you focus on what matters—what you’re selling—the money comes to you.
That said, basic business practices matter.
Just because VC money is available doesn’t mean that the best way to run a business is losing money until you can get more money to lose. As an entrepreneur, you have to be self-sufficient.
When the last recession hit, it hit many entrepreneurs hard. Businesses that were just good at fundraising went out of business because there was no liquid capital. When the money dried up, people stopped investing. The same will happen when the next recession hits.
This is what separates the true entrepreneurs from mere business owners—and you have to decide which you are.
The goal of entrepreneurship is to become a business owner by building a product or service that lasts for decades—or centuries—not to build an idea factory.
And VC money gives startup founders a reverse incentive to build something that can be quickly sold rather than something stable and enduring.
But when your company is built to last, you can weather market changes much more easily.
The best way to launch a startup is to bootstrap, build, and get people to buy.
If you want to build a company without VC funding, you’ve got to be scrappy.
In my experience, it’s best to bootstrap as long as possible. It can seem pretty daunting, but it’s not impossible. Here’s how to do it:
- Prioritize. You only have so much time and money, so be smart about how you spend it. Identify your top goals for the company and make these your only investments. Drop lower priority items for the time being. Small businesses are about tradeoffs. You aren’t going to be Apple, and you have to be okay with that. Don’t aim for perfection.
- Share equity. Try to find team members who will work for equity. Offer a generous package with both the amount of equity and the vesting period.
- Plan for your salary. Bootstrapping means no salary for some time. Will you work your day job or consult part-time, or do you have savings? If you have children, what’s the cost of childcare? Make sure you have a plan for an extended period.
- DIY—but know when to ask the expert. Whenever possible, do it yourself in the beginning. But when you need help building your website, filing your trademark and copyrights, or doing product development—seek expert advice.
- Pitch businesses. Approach businesses, then ask what it would it take to get a 15% deposit down on $100,000 contract, or a $45,000 pilot. Also, try to get some early sales. Demonstrate you know their pain points and try to work with them as partners.
Don’t forget that your primary goal during this time should be to find a way to get paying customers.
Do that, and they’ll raise money for you.
If all else fails, fund it yourself.
In the U.S., we have a savings problem. Roughly half of U.S. consumers don’t even have one month’s savings in the bank should disaster strike, and couldn’t handle a single emergency, like a transmission repair.
If you really want to be an entrepreneur, you can’t be one of these people. You need to ask yourself, and be honest when you answer: Am I saving enough money to get the opportunities that I want presented to me?
If not, start cutting out things you don’t need, and hustle to find new sources of income. Social media influencer and entrepreneur Gary Vaynerchuk, for example, goes to yard sales on the weekends, buys things like baseball cards, and then resells them on eBay. He makes anywhere from $3,000 to $4,000 a week selling what he buys at yard sales just to have an expendable income.
And anyone can do that.
If yard sales aren’t your thing, there are other ways to make money. Particularly in the gig economy, it’s easy to take a side job driving Lyft or delivering Postmates. Or you can do freelance web design or copywriting—whatever your skill set is, there are ways to monetize it.
And don’t forget, it’s also really easy to develop an internet business. You can get free web hosting from Amazon Web Services (AWS) for a year and free marketing ads from Google, Twitter, Facebook. It’s cheap, and I guarantee that will support your first customers.
I would also recommend getting involved in your local entrepreneur community. Lots of people are looking to mentor young businesses and offer their advice to help the community improve.
It’s not always fun, but sometimes the best way to start a company is to get scrappy.
Entrepreneurship isn’t sexy. To make it worthwhile, you have to really love what you’re doing. There are nights I can’t sleep because I’m so excited about a project at Skiplist.
When you have this type of passion, it doesn’t feel like work—and you’ll do what it takes to make it last. And you don’t need VCs to do it.