Venture capital firms invested more in Q1 2015 than in the last 15 years — more than $13.4 billion across 1,020 deals, according to the latest report from PricewaterhouseCoopers and the National Venture Capital Association.
Venture capital may be an excellent choice, but there are reasons a business might be better served self-funding or bootstrapping before seeking backing from the VC community.
For example, it removes early execution risk and keeps you focused. There’s nothing to keep you more honest than actually having your own investment at risk.
Here are four things to keep in mind before jumping on the VC bandwagon that may boost your valuation down the line:
Build a sustainable business model
As a founder, your chief focus should be to build a product, customer base and business model that can be profitable for the long term. Create a minimally viable product quickly so you can test it out on real customers, gain feedback and iterate. Some startups struggle at defining their business model after hundreds of millions in investment and too many chefs in the kitchen. It’s not an ideal place to be.
Leave room for flexibility
Your first idea won’t always be your last. Startups benefit from the autonomy that enables them to pivot quickly and identify new market opportunities. This is case in point for my business, Manage, which started out in the social media space, but needed a plan B when it was clear that competitors were gaining market share faster than we could respond. By latching onto the rising star of mobile advertising, Manage more than quadrupled revenue from 2013 to 2014.
Stay independent
It can seem attractive to build a business that serves the customer base of, say, Google or Facebook or Amazon. Certainly there is a big opportunity there, but too often, those businesses can shift their services leaving your business in peril. Google changing its search algorithm and Facebook shutting down its (free) viral marketing channel back in 2010 taught both bootstrapped and VC-backed companies alike a hard lesson on platform-dependence. Large industry partners can help you, but don’t let them become the entire focus of your business.
Raise money when you least need it
It’s when you feel on top of the world that you have the most leverage to raise funds. If you raise money when you most need it, you’ll likely lose control of your company, raise less and prematurely hand over a disproportionate amount of the long-term upside (and that’s if you do make it). I’m a proponent of having your cake and eating it too — getting the capital you need to grow your business, while retaining control of your company.
Entrepreneurs are faced with hundreds of tough choices as they build their businesses — recruit talent, develop products and acquire customers — investment should expand your opportunity to do all these things well. If adding new investors into the mix impedes your vision and ability to execute, it simply may not be the right time. ●
Fred Hsu is co-founder, president and CEO at Manage.
