Why you shouldn’t raise (cash) investment
Seriously, it can kill your business
About me
• MEng & Man, Birmingham• History in SME, sales, property• Web startups• Internet marketing• Consulting• Equity investments
Sales vs. Cash investment
• Real money comes from customers– It’s yours. Spend it.
• Investment is fake money– You’re selling a piece of your ass!– Investors own you forever.
Real vs. fake money
• Real money– Establishes customer relationships– Builds share value– Doesn’t have to be given back
• Investment sucks out your very soul– Lose control– Creates dependency & obligations– Stifles hunger for customer acquisition
Investors – false friends?
• Investors create dependence• When cash runs out, they strike• Venture capital turns to vulture capital• You can end up getting eaten
Translation guide
• We’ve got 18mths funding– We don’t have to bother with sales for 18mths
• We’ve raised 250K– We can waste 250K before we have to run a
proper business• We’ve got 20K pcm covered– We’ve let our spending blow out of control
Alternatives to fundraising
• Sales!• Better market research– Avoid developing rubbish tech you don’t need
• Product / service blend– Offer a service, develop your product behind
• Licence tech– In (saves money) or out (makes money)
• Cashflow management– Pay slow, get paid quicker
Sweat equity
• Building partnerships, not selling stakes• Lasting commitments• The gift that keeps on giving• Emotional and practical commitment• Can be combined with cash– Choose a committed, helpful cash investor
Cutting costs
• £1 saved is £1 on the bottom line– unlike sales, which is more like £3 to £1
• Keep flexible– staff, premises, contracts
• Reduce overheads– save the pennies
• Avoid building rubbish tech which is obviously never, ever going to sell to anyone!
When to sup with the devil...
• Land grab– E.g. Facebook, YouTube
• Technological developments– E.g. Pharma, algorithms
• Long customer lifetimes– E.g. 5 year contracts
...but use a long spoon
• Raise late, get better valuations• Build convincing data• Prove traction• Attain profitability or revenue first• Choose investor first, investment second• Don’t take money from idiots– They’ll be a pain forever
Summary
• Delay or avoid raising cash• Save money• Research!– Don’t waste money building rubbish tech
• Consider sweat equity, JVs, partnerships• Sell more, sell quicker• @andrewjlockley • www.andrewlockley.com
