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BK Magazine BK Business
Posted by Charlotte Ashlock, Executive Editor, Berrett-Koehler Publishers Inc.
Charlotte Ashlock is a crazy idealist trying to make the world a better place!
Wisdom from the Hungry Start-Up Strategy: Creating New Ventures With Limited Resources and Unlimited Vision
Based on Chapter Three: Raising Capital;Maintain Your Fighting Weight
"When it comes to hungry start-up strategy, there is often no more compelling trade-off than the one between the hunger to control the start-up's destiny and the need to pay it's bills. Taking an investor's capital means ceding some control of the venture,” writes Peter Cohan.
Angel investors can be aggressive about imposing their views on the budding entrepreneur. Venture capitalists may fire you or shut you down if you don’t make your projections. Beware!
-Here are some tips from Peter Cohan’s book about getting money without losing control:
1. Careful use of seed capital from friends and family. Sure, maybe your friends and family don’t have enough money to fund your whole business. But you can use their money to make a bootstrap prototype and do some market research. It’s a mistake to think you need a big office full of fancy furniture before you’re able to start on the hard work of building your dream.
2. Use your customers to finance growth. Initial sale revenues can cover development costs, or you can even raise money from customers in advance using websiteslike Kickstarter. You can also sell stock to your customers, but beware of giving too much control to any single individual.
3. Use your suppliers to finance growth. When Amazon was growing back in the day, it had $3 billion dollars in not-yet paid bills to its suppliers. It was effectively using its suppliers’ capital to finance its growth. You can do the same (provided your suppliers are understanding.)
4. Don’t come to funders empty-handed. If you come to a funder without much tangible proof that your business will succeed, they’ll negotiate a cut-throat deal (or just ignore you entirely.) On the other hand, if you bring a great prototype and market research, you’ll have leverage in your negotiations. Set yourself up to bargain on your own terms.
5. Find funders that not only add value, but share your values. Look for funders who contribute not just money, but networking opportunities and expertise. Ask other start-up founders about their experiences with funders. Find the right chemistry. If your funder shares your values, they’ll probably make the same call as you, when push comes to shove.
And finally…. don't forget you’re hiring your boss! Peter Cohan writes, "Since going outside means giving up control, entrepreneurs should be very cautions when selecting their capital providers. As entrepreneurs are hiring a boss, their survival and that of the venture depend on proceeding with care."
For in-depth information on the pros and cons of angel investors, venture capitalists, and other innovative funding strategies, check out Peter Cohan’s book here.