

The Greatest Secret to Raising Venture & Angel Capital - MrHaney
http://smartstartup.typepad.com/my_weblog/2007/07/the-the-greates.html
Raising venture capital secrets.
======
nostrademons
Interesting to compare this with Paul Kedrosky's take on the Twitter
funding:[http://paul.kedrosky.com/archives/2007/07/26/the_twitter_les...](http://paul.kedrosky.com/archives/2007/07/26/the_twitter_les.htm)

Another observation: if you apply this advice to a typical Web 2.0 startup,
you get an employee. The "customer" of a free consumer web startup is its
eventual acquirer: after all, that's who's going to pony up the cash that
becomes the entrepreneur's profit. The "suppliers" are the users who donate
their time, and sometimes the investors who donate the money needed to build
something that makes it worth it for the users to donate their time.

You have three options for how you're going to manage time, cash, and users.
You can go to your customer (the big corporation), and say "Pay me now and I
will build something that hopefully users want. If they don't, you're out the
cash." This is an employee. You can say "I will build something that users
want, then when I have shown that users want it, you can pay me. If it flops,
it's my problem." This is a bootstrapped startup. Or you can go to someone
else, say "Give me cash and I will find users. Then the customer (big company)
will want to buy us, and we will shared in the profits. If this doesn't
happen, you're out your money and I'm out my time." This is a funded startup.

It also occurs to me that many of the misunderstandings behind Web 2.0 and
doubts about the sustainability of free web startups come from this reversal
of the roles of customer and supplier. Most people think of business as big
companies producing a product that is consumed by ordinary people. The Web 2.0
entrepreneur essentially "productizes" consumers and sells them to a big
company. This only works because brand loyalty and customer satisfaction have
become tradeable commodities: 10 million loyal users and a product they use
daily is considered an asset, even if none of them are paying you for it.

------
jkush
Interesting anecdote, but completely mistitled.

After reading the article, I didn't feel like I learned any secret to raising
venture and angel capital, I just learned a trick for managing it once it's
been obtained.

~~~
pearcec
> "The Greatest Secret to Raising Venture & Angel Capital"

I think what you were meant to take away is that investment capital is easier
to get once you proved you can generate cashflow upfront. You don't really
have to prove you will have a product that produces cashflow, you are already
doing it. And investment capitalist believe in the market.

So I think it is aptly named, if you think you need to go through the typical
steps to getting money you can ignore that if you just start making money. So
why then do you need money? To grow the business faster then the market would
otherwise allow.

