Questions

When I first started working on my start up, it seemed that until it was generating revenue,it would be pointless to ask anyone to invest. So I pursued it myself. Now that I have spent about $300K in development, I have a working product with paying customers. But I think I need investment to make it grow and I'm not sure the next steps. A local business association agreed to promote the solution to 70 members if I provided a 15% revenue share. As an example, for the business that referred me into their local association, the annual cost for me to deliver them services was $300 a year. The amount they paid for the service was $3,000 a year. Client is reporting results of $40,000 a year in new client acquisition. We expect their results to increase and have agreement to raise the cost accordingly. Our cost of service will not rise. Need help in understanding funding options to help grow the business now that I see it has roots.

+1 to Tom Williams answer.

As with anything, there are pros and cons. The pros are obvious:
- access to a lot more money to help you scale, hire and acquire more customers
- someone who can open doors and make key introductions for you (smart money). Who you raise from is often a lot more important than how much you raise.
- more credibility when dealing with journalists, potential customers or partners, and in convincing rockstar employees to join your company

The cons:
- Loss of control (although this isn't usually as bad as it's made out if your interests are aligned - ie an exit in 3-5 years)
- Raising money is time-consuming and distracting. It can often take 6 months, and it's a full-time job the whole time. What is the opportunity cost of those 6 months? Would you be better off spending that time finding more customers?

Without knowing the specifics of your business it's hard to offer any tailored advice. Some businesses have a long path to revenue because they have to build massive scale before they can monetise. Other businesses are in a new industry, where it's a landgrab situation, and they need to raise money to dominate the space before their competitors do.

On the other hand, if you're in a mature market with lots of competitors and already have enough paying customers to be cash flow positive, sometimes raising investment is not that helpful at all.


Answered 8 years ago

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