Hundreds of articles today make the apology of companies raising funds and often for record amounts, as if it had become a norm. The problem is that now people are starting businesses to raise money.
"Yeah, look, A raised 1 million last week, B raised 3 Million last month. It's easy". I hear that every day. The power of some media that amplify this phenomenon exponentially. Speaking of a case, we get the impression that 100% of new businesses can do it easily. But a very very small % of these companies managed to do it.
Successful fundraisers have in a majority (if not all) a product, teams, a clear strategy, an identified and quantified market, and even small sales. And most importantly, we raise funds when we can do otherwise but we want to go faster with. That's the difference for me. Otherwise DO NOT RAISE FUNDS
You don’t create a business to raise money, you start a business, to solve a PROBLEM (or PROBLEMS). Customers, businesses or individuals for whom you are solving this problem are paying you for that. A business must be created solely for that. The rest is a short-term one shot that we forget as quickly as it appears.
What relationship do you want to have with your future investors, a true partner relationship or a boss-to-employee relationship (and in this case, you will be the employee). Of course everyone wants the first case (for others I can’t do anything for you), but very few know the risks of the second case.
When you start a business, there is a certain ego in the process, beyond solving a real problem of how you think you are the best person to resolve it, in a growing market, the desire to be your own boss, the captain of your desire, the master of your future, let's admit it, is very strong. So what do you think will happen when someone you don’t really know (not enough in time anyway) will write you a check with several 0, and with potentially one day to get his money back with profits (or never).
I will answer you because I lived it when I worked in an investment fund.
This person (or organization) will not let go, he will want to know what you do, to who you sell, how you sell it (why you don’t sell enough), who you want to recruit, why you want to make this decision etc. ... admit that it looks like a boss no? And it's not just about losing a job if it goes bad, but keep in mind that there is a QUESTION OF MONEY ON THE TABLE (and often a lot of money). Your reputation will not survive.
So think carefully before embarking on this fundraising adventure, or even before starting your own business. You don’t create a business to raise money, but to solve problems first and foremost.
Especially since it is totally possible to get your first customers with 0 investment. I can tell you how. Guess what's going on right after? Investors will find you don’t worry about that, and there, it is you who will lead the dance of your future relationship with them. It's not bad for the ego right? ;-)
Founder & CEO Lozard Institute