In recent times, venture capitalists (VCs) have become a key feature in the startup landscape. These are the money bags; the people startups may have to convince to get funding.
One important element in VC interaction is to know when to bring them in. At what point is your business ready for outside funding?
It’s exciting to raise millions for your idea, but that’s only the beginning. Some startups have gotten huge venture capital and it still didn’t make a difference because they weren’t ready. Although they thought they were. So how do you know you’re ready for outside cash?
- Strong Leadership
My consulting experience has shown me that a company’s bank balance, great infrastructure or smart workers, irrespective, if the leadership is weak, the business is sinking – it’s only a matter of time. I’ve witnessed this; it’s sad. That’s why Sales expert, Brian Tracy, believes that “Leadership is the most important requirement for business success.”
So, before you seek outside cash, ensure that you have a good leadership culture and structure to support your dream. Or else, more money would simply mean more trouble – especially when it’s coming from impatient investors who want returns in good time. With poor leadership, you would be digging your own grave.
- Cross Assumption Threshold
Steve Blank, author of
The Startup Owner’s Manual, said that, “a startup is a faith-based initiative searching for the right business model.” Unfortunately, VCs don’t want to be part of this search. They prefer to come in when you’ve found a model that works. This way, investor confidence grows.
How do you know you’re ready? Find the right business model. Otherwise, your pitch would be an exercise in requesting for more gamble money. VCs don’t like that! They want to know that you’ve addressed your unrealistic startup excitement with all (or most of) its untested assumptions.
- Scaling
The real question is: why do you need outside cash? Are you selling enough to warrant more funds?
I would rather you ask your favorite uncle or sweet grandma for money than bother with VCs when you’ve not grown the business enough to scale. In other words, is there a feverish demand for your product that you’re now struggling to meet up?
If you don’t have what I call:
good trouble
– meaning, customers have gone wild on your products and you have to quickly increase your capacity in order to serve them better – then you’re probably not ready.
Twitter: @SamuelMpamugo
Blog: theyouideology.com