Should You Raise Venture Capital For Your Startup?
This is an important question for many startups. Whether you raise money or not depends on a number of factors, including the type of business you’re starting. Some will require more traditional loans, others are perfectly suited to being bootstrapped.
Each financing option - bootstrapping, small business loan, bank loan, angel money, venture capital, etc. - has its place.
So which one is right for your business?
The type of business
The type of business you’re starting makes a big difference. A lifestyle company shouldn’t require huge amounts of venture capital; VCs won’t invest anyway, because a lifestyle company won’t give them the big returns they need.
A lifestyle company is one that supports a good living for you, but isn’t designed for an exit (i.e. selling to another company, IPO, etc.) Lifestyle companies are typically smaller, built around the expertise and skill set of the individual founder(s).
You may need a small loan to get started with a lifestyle company, but more than likely you’ll bootstrap it.
The complexity of the business
Web 2.0 startups are all about simplicity. The Y Combinator model has shown that you can start a business with very little money and create success. But not every business is a Web 2.0 technology company.
Biotech companies often spend years on research and development before they have a product they can sell. It takes a lot of investment to bring a new medicine or biotech product to market.
Work-at-home businesses usually don’t involve any R&D and they can be easy to setup (although that doesn’t mean they don’t require a learning curve!)
The status of the founders
Recently, a debate was raging across the blogosphere about the perfect age to be an entrepreneur. It was centered around tech startups, where the age of many founders getting funding is in the 20s.
20-year olds starting out for the first time, perhaps still at school, don’t need to pay themselves much (if anything) and they have minimum living expenses. Typically, the older you get (until you hit the age of retirement), the pricier life gets, so as you enter your 30s, get married, have kids, etc. you can’t live in a basement apartment on macaroni and cheese. You can, but you probably won’t want to…
When you start a business, you should expect to take a pay cut. Even if you weren’t working before, you’ll probably put money in versus take money out. And if you’re coming from a paying job, don’t plan on earning the same amount. Nevertheless, as you attain a certain lifestyle, you’ll want to maintain what you can, and your funding decisions may reflect that.
Go big or go home
“Go big or go home,” is the philosophy behind Standout Jobs. It’s not the way every startup should be imagined or run but it works for what we’re doing.
What’s critical for any startup is to find your own philosophy and approach. Believe it. Focus on it. Live it. Drive everything towards it.
[…] Yoskovitz, one of the founders of recently-funded StandupJobs, has a good post today on whether start-ups should try to go it alone, get a small business loan, angel money or […]
It’s really solid advice, Ben. One thing I would add is attracting venture capital involves a lot of work before and after funding given many VCs want/need to meet, discuss, be involved, etc.
[…] June 5th, 2007 · No Comments Ben Yoskovitz, a founder of StandoutJobs, which recently closed a $1.5 Million round has an excellent post on whether a startup should raise money from VC’s or not. […]
i am still amazed how you got the deal. this is going to bring in lots of pressure. i guess i need to watch out and reevaluate standoutjobs.
Mark - There’s no question. When getting funding there’s definite overheard beforehand and after.
Heri - Money or not, there was plenty of pressure already, put there by Fred, Austin and myself. The money means we answer, in part, to more people than just ourselves, but every business has that - you answer to your customers, employees, partners, etc.
Give us till the Fall. We’ll launch something and you can re-evaluate then. I look forward to it.
[…] Ventures Canada who is joining me in the financing of the project. As Ben mentions in his post we didn’t originally set out to raise this money when we started the project. Part of what […]
Congrats on the start-up! I wish you all the best. There is obviously a hole that needs to be filled and you found it.
Hey Ben I just gave you the “Thinking Blog Award” it is your choice if you accept or not. You can check out my post on it to know more… http://friendshipblog.blogspot.com/2007/06/thinker-blog-award.html
Business Blogger - Thanks. Here’s hoping. *smile*
Emmie - Thank you. Very cool. I’ll have to think about those 5 blogs and what I can do about posting on them soon…
I think it’s necessary to play things in a safe way. Starting a business with enough capital to run the business in a good way should be the target. It doesn’t have to be outstanding all the time..
[…] bill surprised some.) You can launch businesses and Web products cheaply. It doesn’t work all the time and in all cases, but that’s not Guy’s point either. He picks a side to argue it, and generate […]
[…] Should You Raise Venture Capital For Your Startup by Ben Yoskovitz… This is a Big question for some startup companies, do you want investors or do you want to go it alone? Ben says it just depends on the business type. […]
Hi
For fresh graduates or for employees who want to start their own businesses, one of the hardest things to do is to get the capital that they need to do so. This is because most of the traditional sources of loans or funding are apprehensive in providing funds for start-up businesses.