Hide this You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
Startup tips

Why Startups Should Not Look For External Funds

Why Startups Should Not Look For External Funds
Image credit: Shutterstock.com
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
Reader Resource

Position yourself for growth in 2017—join us live at the Entrepreneur 360 Conference in Long Beach, Calif. on Nov. 16. Secure Your Seat »

Most startup founders keep themselves busy raising capital and looking for investors. Hopping to random financiers and marching in the waiting section of investor’s office is how most startups spend their days. It seems logical as well to the novice entrepreneurs. After all, without capital, how would there be success?Money is the best way to develop your product and expand business, right? Besides, it is believed that raising capital is an integral part of startup foundation.

Although raising capital for your entrepreneurship is often necessary and investors play crucial role in shaping many ventures. However, external investment is not an utter need for all businesses. In fact, it may not be of any benefit to some businesses. Here is why a startup should rethink their need for external funds:

Wasting Time and Energy

For a new business that needs your complete attention on ideas and product improvement, startups fall in the loop of fundraising attempts and get all consumed by this process.

A minute spent convincing the investor is a minute you could have invested in improving your product and pleasing your customer.

Practically, it takes several months and numerous meetings to convince just a couple of investors, which may result in a term sheet. For an early startup there cannot be a more epic way of time wastage.If at the end of the day, you don’t have an interested investor, you start losing belief in your business and skill set.

More Focus on Revenue Generation

When there is a fat chuck of fund in your company’s account to provide you a runway for an year or more, company lose the main focus which is revenue generation. Instead, small cash injections from your hard earned savings will give you sufficient runway. Besides, the thrill of going flat broke will give you kick to work more for revenue generation.

When funds are limited, companies are forced to take the wisest of all decisions and make the best use of money. You make every penny count!

Big Funding is Not Always Needed

Startups are organizations that are in search of a business model. It is often confused as a small version of a “could-be” large organization. A startup is a completely new entity that is in rigorous process of discovering what it’s future customers really want.

Founders need to realize that there is no need to invest in a five-member prototype development team when a single freelancer is sufficient to develop a lean version. This will influence your financial needs and you would better understand if outside funding is a need at all.May be you don’t realize now that you have sufficient funds to start the work.

Investment for future expenditures like product developers, marketing initiatives, technology licenses and access to distribution channels and intellectual property investments, are understandable. However, too many sales executives without a finished product, huge office space and highly payed employees are not smart moves in the initial running of your venture.

Self-Revelation: Make a budget list of items you are planning to invest on. Make a table of important items, “nice to have” items and unnecessary expenditures;dedicating one section to each. Now evaluate which expense of your budget you would like to keep in which section. At the end of the assessment, you would know if you actually need external investor right now.

Sharing the BOSS-CHAIR with a Stranger

Giving away your company’s equity in return for cash is not a transaction you make in haste. This relationship will be on your shoulders for as long as you have the company. Involving the investor in every major business decision, keeping them in loop about the progress, explaining losses, numerous unnecessary meetings to keep them involved, unnecessary flow of excel sheets and constantly justifying your actions become part and parcel of your life.

All the reasons you wanted to be your own boss is taken away with that single move.So think twice before you make this life-long commitment.

In fact, taking investment reciprocates as sharing of profit. A large chunk of company’s profit goes straightaway in the pockets of investor, who did not actually put in anything in your firm other than cash.

Money of your blood and sweat slipping away from your firm will definitely not make you feel nice. International funding companies are even worse to consider as the profit generated in your company goes in development of other countries instead of empowering your country’s infrastructure and workforce.

Several entrepreneurs choose to bootstrap their operation. Putting your own money in your business gives you complete control over finance and creative aspects of the company. You consciously put each cent at its well-deserved place and make wise moves for your firm.