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