I write about the mobile workforce revolution. FULL BIO ENTREPRENEURS 4/16/2014 @ 11:34AM |600 views Raising Money? Think Hard Before Your Business Takes The Plunge Share Raising venture financing has become commonplace among startups. Tons of entrepreneurs takes this approach: create traction, raise money, step on the pedal to accelerate growth. But as we’ve seen in 37Signals’ bootstrapped community this isn’t the only way to build a business. Before devoting energy and resources into raising capital – and this is advice that I’ve heard from VCs themselves – make sure you’re raising money for the right reasons, don’t rule out bootstrapping as an option and understand the implications of the capital raise. “Bootstrapping” refers to a business that is self sustaining and has not taken in an external investment. Bootstrapping doesn’t mean lack of revenue or profits — in fact, it forces you to make hard decisions to keep expenses down. It helps you prioritize what is important and what is not. Bootstrapping also acts as a strong filter for members of your team: they have devoted their time and energy knowing fully well the lack of any outside financial support which means they need to truly believe in the company’s shared vision. Success stories are plentiful: a recent IPO candidate, Atlassian, bootstrapped for eight years before accepting venture funding. Lua spent two years doing contract work on the side building databases to keep the lights on before truly hitting the fundraising trail. Bootstrapping helps you earn your stripes. So, why do entrepreneurs raise funds? 1. In certain opportunities, it takes money to make money This is especially true in companies with higher CapEx: hardware technology; consumer services that require large investments to build a user base; and, in many cases, B2B services. One look at some of the largest technology IPOs in the last few years offers examples of companies that took a while to reach profitability: Facebook and Twitter, which entered the public market with massive losses and more recently, Box which filed for an IPO while still unprofitable. Sometimes, it takes extremely large amounts of money to make money.
Posted on: Sun, 20 Apr 2014 11:28:35 +0000
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