Some of these successful companies like Microsoft, Mailchimp, Zoho, and Virgin started with no investors’ money and yet they are the market leaders in their respective industries. So it is clear evidence that, If your business solves a problem first and figures out how to get to revenue fast, you may not need early investor money. You may decide to work with venture capitalists later to more rapidly scale or expand but you will do so at a better valuation and give up less equity.
You don’t have control of your company – When you bring on an early investor, they may involve in all aspects of your business dealings including taking some major product development or sales decisions. While you are focused on building something meaningful and great, they want their money back at some point. This could create real tension when you have to start running decisions past investors and they disagree with you and at a later stage, this may lead to pushing the company on cash flow issues. Sometimes it may lead VCs to take over the company.
You lose too much of a stake for a small penny – The equity is considered valuable and valueless for any early-stage startup unless the product gets successful. It’s valueless because you may not have revenue and it’s hard to spend on marketing or R&D with valuation. Plus, you will need equity for key employees or later-stage investors in the future. So it is important for any startup founders to play safe here.
Valuation Gambling – I’m sure everyone must have seen how WeWork’s valuation spiked a few years back and we know where they’re now. Thanks to Softbank. It is important for every startup founder not to fall into any trap of so-called business or industry valuation suggested by any Financial research firm. If you do so, then fate may be like Adam Neumann.
If it’s not scalable short term, forget it. If your real business growth opportunities are scalable in the long term, then forget about business sustainability for the longer term. Most investors or VCs want to make double the money in a shorter time, so they may push to start the revenue generation at the earliest. So this may lead either investor will make exit or together exit the operations.
Post your experience or thoughts about whether to look for investors at an early stage of the startup
