Why you shouldn’t raise money… yet
Thursday, June 2, 2011/
Your instinct to raise money for your start-up could be getting in the way of your progress.
When a brilliant idea strikes you, the first reaction may be to strive to raise money as quickly as possible. But that should come much later in the process and often is just a convenient excuse to not go past step one.
Entertaining the thought of raising millions of dollars is a much easier and more exciting process to go through than actually doing something. For starters, you can blame others for the failure: Australia needs a venture capital industry! The Government needs to do more! Just look at how magical Silicon Valley is!
You can attend events on “how to raise venture capital” and say you’re an entrepreneur. Ultimately though, you’re no further along in discovering if you have a good idea or not.
Instead of raising money, writing code and then proving the business, do the complete reverse.
How do you prove a business without writing a line of code? Set up a landing page and spend $100 each on Facebook Ads and Google Adwords and ask people to register for a private beta or early access. How easily (or hard) you can do that is a hugely valuable signal of whether you are on to something or not. What demographics on Facebook Ads are working? What keywords on Google Adwords are converting the best?
Then sell whatever you are doing in a manual way. Don’t be afraid of doing things that sound completely unsustainable because you’ll learn more about what gets people to act or buy and after you do, you’ll be in a much more informed state of mind to design your product.
Nearly all money in an angel round will be spent on people. So if money is people other than you, you have a few choices. If you’re not a technical founder, why not become one? Programming has become a lot easier to learn and master. It is a complete myth that computer science degrees produce programmers.
Or save up $5,000 and hire a developer on sites like oDesk. Kevin Rose started Digg by spending $2,000 on elance.com, proving out the initial usage and then building a team and raising money.
What if my site goes down and my code crashes? Problems to do with scaling are problems that successful companies have. Everything you do now will be rewritten later. Worry about a working product and understanding usage but not about how well your solution will handle a million users.
Only after you have some small-scale idea of customer behaviour should you try to raise an angel or venture round.
Don’t use raising money as an excuse to not start your start-up! Prove your business out manually and then write the first code yourself.