Gideon Greenspan - Startup Tips

What's the Point of Investors?

So you've had a great idea for a real business, and have hooked up with a co-founder. Time to seek out investment, right?

Wrong.

Unless you have a strong track record, or personal connections with investors, you'll get nothing at this stage. You'll spend months making the rounds, and have nothing to show for it at the end.

Instead, spend this time working on your product. Create a prototype, gain some exposure, and learn about the need you're trying to address. If you're a student, take advantage of your freedom. Otherwise, work in the evenings or at the weekend. Keep improving and working at it until you can honestly say you've achieved something real.

At that point, and only at that point, consider seeking investment. You'll already have proven three important things:

  • Execution. You are capable of building a good product.
  • Market. There are people in the world who are interested in it.
  • Frugality. You are able to get by on limited resources.

You should still avoid raising money for as long as you can. Finding investors is a long hard slog. In a good case, it will take around 6 months. During this period you'll be distracted from building your business.

But what if your idea needs lots of money, just to get off the ground? What if you want to hire developers, buy equipment, and fly around the world to meet potential partners? In this case the solution is simple: change the idea. Barring extraordinary circumstances, investors won't be willing to bankroll your expensive dreams.

There is however one good reason to take investment: to accelerate your company's growth. If you have a small but profitable business, an investor with deep pockets can help you take it to the next level. In this case, you have an opportunity, rather than a need. This changes the dynamics, and gives you a stronger position when negotiating terms.



© Gideon Greenspan 2014
 

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