Deborah Simpson had a good idea from the start as to how much money she'd need to launch Santa Clara, California-based MetaSound Systems Inc. in 1996. MetaSound makes cutomized software that programs and plays music and messages for callers on hold.
The former corporate consultant knew she'd need at least $1 million to finance research and development expenses. However, she had to settle for only $300,000 of angel financing-an amount that barely got her out of the starting gate. Six months later, the money was gone and she was forced to raise an additional $1.3 million through angel financing.
Simpson, 41, was prepared to give away up to 90 percent of ownership in her company to secure big returns. But soon she, too, discovered she needed far more capital than she had originally estimated. While the amount surpassed that of most start-ups-software development requires large amounts of capital-the lessons she learned could be applied to all fledgling companies.
No matter how much time you spend estimating start-up costs, Simpson urges entrepreneurs not to follow them like gospel. "Take what you think you'll need and multiply it by 10," she says. "The more you have, the faster you can build the foundation of your company."
Simpson also recommends raising money-even when you think you don't need it. This strategy has certainly worked for her: Last year, MetaSound's sales hit $500,000; she expects they'll jump to $2 million this year.