The BIG question is, should you raise and take investor money? It’s been the default for young entrepreneurs and that has been their indicator of startup success.
When I first started, I didn’t regard intently to build and sell a business. I just thought of the idea of loving the process until I met someone about five years ago. He was introduced to me by a common friend and had a very good impression of him. For privacy, I’ll never say his name and details, but he is a foreign national and is one of the most respectable men I have ever met. He was my angel.
He boosted my perspective in the company and opened how big the potential of the market here in the Philippines. But naivety took over. Long story short, I took his money for equity with the intention of getting big. I thought I know it all. I thought my knowledge and experience from the (micro) scale of my business for my first 10 years was just enough when you scale up.
Yes, we eventually quadrupled the business in revenue/profits, projects and team in just a year but was it sustainable or can it further scale? That’s where I lost it. Here are four major differences when you run your startup in bootstrap mode vs. with investor money.
Cashflow stress vs. Investor stress. When you run the company by yourself, then you have to keep your organization lean so you can be ready when sales and collection are delayed. You are in defensive mode. Your day-to-day is sales and collection because your stress will come from vendors and employees you couldn’t pay if you fail.
If you have a board or investors, then be ready to explain yourself to them if you don’t meet your company objectives.
Managers vs. junior employees management. My biggest mistake was hiring the wrong managers. I only considered their technical experience when I took them on board but didn’t really screen their personalities, attitude and soft skills. It was difficult to assess those traits in general, but my major mistake was tolerating them and not terminating early. If your organization is lean, then you can groom your employees to adapt to your core values and the culture that you like to implement.
Sprint vs. Marathon. When you take the investor money, then you are expected to run it in sprint compared to when you have the entrepreneurial freedom to run it at the pace you want.
100% control vs. Less Control. Be ready to give up your free Starbucks coffee, or your complete freedom to pay your meals in the restaurant for representation because investors or even your CFO may question that especially if you are not meeting your goals. If you run your business for a long time without anyone questioning you on minor expenses, then be ready to set aside your ego because new company policies may not tolerate those perks especially if have yet to meet your goals.
In summary, here is my take on why you should take or not take investor money:
Define your measure of success. If you see success as being able to provide for your personal and family goals with enough company revenue and profits, then you won’t need to raise any fund. Otherwise, if you feel pride in valuing the company at P400M or P1B, and selling it, then investor money is for you because it is very difficult to grow at that level from current business profits.
Your Market Share is Big Enough. If you feel you only have a tiny percentage of the market share and room for growth is huge, then you may consider it. In any case, investors will never invest if the market is not big enough.
You Can Give Up Control. If you can be professional enough to submit to new company policies and give up some control and ego, then go ahead.
You are Self-Aware and Strong Enough to Face Adversities. Do you really think your startup has the potential to be a unicorn with that one big idea? To me, it is like buying a lottery ticket and expecting to win. In any case, be ready for criticisms, customer feedback, employee feedback, investor feedback and legal issues because the bigger you get, the more fire you have to fight and problems to troubleshoot.
Final words. Do not rush to get investors or VCs. Build traction first, test and iterate and savor your entrepreneurial freedom. Consider income from other sources if needed.
But in case you meet the criteria above in favor of raising funds from investors, then consider their added value and efforts, and not solely on cash they will provide.
On my end, I am now very engaged and committed to streamlining our delivery process on a self-sustaining model. I want to keep it lean and make our growth a marathon. I am now in the process of making sure our customers will use and be happy with our products, which were difficult to monitor and control if you have a bigger organization.
While my friend was the one investor who got away, I am very grateful to him and praying that I give back that favor in the future. I won’t be able to write this if it is not for him and that experience.