

Self-Finance or Raise Money? A Quandary for Start-Ups - digisth
http://www.nytimes.com/2013/06/20/business/smallbusiness/self-finance-or-raise-money-a-quandary-for-start-ups.html?pagewanted=all&_r=0

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mindcrime
It _is_ quite a quandry, but here's my take for what it's worth:

At Fogbeam Labs, we've chosen to go the self-financed route for now, and for
as long as we can. Here's why (in part):

A. Taking outside money means spending time fund-raising, and not time talking
to customers or building our products.

B. When you take outside money, you take on a different set of expectations
and goals, which may or may not align with your own.

C. Due to (A) and (B), you can find yourself on a merry-go-round (as a
founder) where as soon as you finish raising one round, your focus has to turn
to raising the _next_ round. You literally take yourself out of being able to
focus on customers and/or product.

D. Dilution cuts into your equity stake

E. Investors will likely have veto rights over any acquisition or liquidity
event, and - again - their interests might not align with the founders'
interests. You may have a chance to sell that would make you rich on an
individual level, but which the investors my veto.

F. The investors are likely to want to exercise at least _some_ control over
what you are doing and how you do it. Especially if they think of themselves
as "smart money". But they may or may not _actually_ have good advice to give,
but you feel pressured to respond to them since, well, you're spending their
money.

G. The earlier you take outside money, the more favorable the terms are going
to be towards the investors. If you delay until you have traction, or even -
FSM forbid - are cash flow positive, you have a lot more leverage and can
negotiate terms that are more favorable to you as a founder.

The flip-side, of course, is that - unless you are already wealthy - the self-
funded route is probably going to be a lot slower. I mean, we could certainly
move faster right now if we had a million dollars in the bank and could go out
and hire employees, and advertise, etc. But what I disagree with is the notion
that moving slow means giving up any given bit of "land" (to use the analogy
from TFA) indefinitely. I'm more of a "slow war" kind of guy - the attitude
here is "sure, have the un-seized land for now, we'll come take it when we're
ready for it."

We also realize that you don't have to "rule the world" to be very successful.
I mean, yeah, I'd LOVE to build the world's largest and most powerful
enterprise software company, and that _is_ the ultimate goal to be quite
honest. But if I still own, say, 50% at a point in time when a chance to sell
our for, say, $50,000,000 comes along, then hey, that would be something to
talk about, as that's into "FU money" territory.

OTOH, if I wind up with my ownership share diluted down to 1%, then we have to
reach a much larger valuation in order for me (on a personal level) to achieve
that same standard.

Probably the one thing that messes with my head on this, though, is that I'm
not a real young guy. I'll turn 40 in 2 days, so there's a little nagging
thought that going the slow and steady route might mean that - even IF we're
successful - I'll be so old when we get there that I won't get much chance to
enjoy it. :-(

