I admit I don’t work with many true start ups. Most of my clients are a bit further along than that. STILL one of the top things I hear when I’m speaking with people for the first time, and when I get emails through my website is this:
My TOP problem is finding money for my start up. Do you know any angel investors who will work with me?
Well, no. And, if I were an angel investor, I wouldn’t work with you. You know why?
All you have is an idea. Maybe a cute name. Maybe even a 5-year vision, although when I hear these, they’re usually grand in scope and equally vague.
I do happen to know a couple of angel investors. I have a client who recently worked with one. However, it was on an EXPANSION, with a two year history of being successful in business. Not a start up with NO sweat equity courtesy of the business owner with her hand out.
Listen, here’re the harsh facts about investors:
1) You PROBABLY don’t need them like you think you do. 9 times out of 10, you don’t HAVE to start out with a corporate location, five employees and a company car. You can start small. Take baby steps and PROVE your idea along the way. Should you want / need an investor down the road… well, you’ll have a proven concept on your hands, not an idea. You’ll be bringing your own sweat equity to the table, and have MUCH more to offer them. What’s the SMALLEST part of your grand idea that you can launch (and PROVE) now? Start there.
2) Investors are taking a HUGE risk, and demand a HUGE return. We’re talking, NOT ONLY will they be paid back with interest for whatever they bring your company, they’ll also demand a pretty large chunk of your profits moving forward. So, let’s say you pay them back — with interest — over three years, for the remainder of the life of your business, they’ll likely get anywhere from 20 – 50 % of your profits.
3) An infusion of cash — NOT PRODUCED BY SALES — robs your business of learning how to stand and walk on its own… in many, many cases. I bootstrapped this baby from day one and — as a direct result — my business learned to produce a profit. It wasn’t “raised up” to think that I gave IT money, but that it gave ME money. That’s the way I like it. =)
I know that some businesses NEED money to get started, but mainly PRODUCT-focused businesses… inventions, etc. But MOST businesses could start small and fund their own growth.
P.S. Another word of caution: I know a woman who’s product is now in major stores. You KNOW this product. You’ve heard of it. It may even be in your kitchen as you read this. She gave up HALF of her company to an investor to fund it’s growth. Do you know how much money she’s personally pocketed in the past 3 years as a result of her grand success? None. I have every confidence this will change for her — eventually. But — whew — that’s a LONG time to wait for an un-guaranteed pay-off. For me, anyway.