At the recent Mobile Monday event I attended, Sam Sethi talked about how much easier it is now is to get a company of the ground. To quote Sam as best as I can remember:
“In the last round of funding, start-ups needed to go to a VC, take business plan, present it to them, pray and cross their fingers, in an attempt to raise a few million pounds. This time, around which is why VCs are finding it so hard, you can fund the company on a credit card and when you take later take the business plan to a VC, you just provide a http://www.xxx.com link, and say ‘I’m profitable’, ‘I have customers’ and ‘I did it very quickly on sweat equity.’”
This is all so, so true and it is the methodology I have adopted for trymehere, although I’m not sure about the quick bit!
When Sam pointed this out, he was probably thinking more about the web 2.0 space where a ‘point application’ can be developed quite quickly using free open software. The practice being that you have a developer as part of the team rather than spending a fortune on out-sourced development in the Ukraine or elsewhere.
However, if your idea requires chip development or is a complex Operational Support Software (OSS) package, then it is likely that a larger team of developers would be required and the development may take many months to complete. This, is much more of a challenge to get going.
It’s most unlikely that you will be able to raise VC money on the basis of just an idea and a business plan unless you really are a serial entrepreneur with a history of success behind you. So, the real challenge today is just how do you get your new business off the ground while still paying that dreaded mortgage?
If you really do need significant money, it makes good sense to leave an approach to VCs to a much later stage by which time you will have real customers and more importantly, real revenue. This will maximise the pre-money valuation of your venture and reduce the percentage you will need to give away to institutional investors.
Friends and families can help in the early days and certainly individual angels or angel groups also, but again the more you have a real product and real revenue the easier it will be. But to be honest even angels are hard to find these days as they are still recovering from the 1990s.
One of the key ways to resolve this issue is to return to how companies were started before the 1990s i.e. bootstrap the venture. But, how do you do this?
When bootstrapping comes up in a conversation I nearly always push them to visit a great web site with the catchy URL: http://www.antiventurecapital.com . This may sound a bit negative, but it really isn’t once you delve into the material. The site itself is called The Smart Startup and it’s the strap line that says it all – Solutions for the Startup Funding Problem.
It also says: or How I Learned to Stop Waiting for Investors and Start Building Companies? Isn’t that what we all should be doing?
I really can’t recommend this site more and the acquisition of Peter Ireland’s guide for $59.95 will certainly get you thinking and just maybe provide some answers. (and no, I’m not on a commission!)