Raising Business Capital Right Now
We've all been reading about the series of huge raises that Facebook, Zynga, Twitter, and Groupon. have completed in the last few quarters. However, on the other end of the spectrum, startup capital isn't as big budget as it was in the '90s. The technology to manage and monetize websites has gotten a lot cheaper and easier to deploy. The costs to start a business and prove your concept to potential investors has dropped dramatically. While this means that there are fewer barriers to entry nowadays, the downside is that investors simply don't want to invest as much, even in very strong ideas. For less than $50,000, an entrepreneur should be able to prove his model.
Containing costs is king. A web entrepreneur today is expected to make every dollar count. By leveraging mature open source frameworks and working with cutting edge programming languages and techniques, you should be able to keep your costs under control. As hardware gets cheaper, using languages such as Python and Ruby on Rails almost act as virtual leverage, enabling you to afford to create far more for far less. Dynamic language frameworks and barebones budgets are the secret driving force behind the design and ultimate success of Twitter. Doing more with less is always a winning strategy. You also keep more of your company when seeking outside investors. "If a web entrepreneur needs more than $100,000 at the seed stage, it is a pass for me," said seed stage investor Peter Klamka.(http://www.peterklamka.us)
Keep in mind that venture investors want as much of a good company as they can get. They are far from stupid. Even though the raises have gotten smaller, venture capitalist demands have gotten larger. You will likely give up 50% of your company when you seek venture financing. This financing also comes with a huge host of incidental costs, from increased legal fees to onerous partner reporting and venture capitalist meddling. If you can, try to find a lower commitment financing option that provides just enough working capital to start to scale. Then, once you have proven your business, you'll be able to negotiate far better terms with the venture capitalist. What is control of your company worth? A lot. The best part of Mark Zuckerberg's initial Facebook raise was not the valuation but rather the ability to keep his company that his investors let him keep because he'd taken the time to prove his concept. This gave him the room to execute his vision successfully. While you can always return to venture capitalists in the future — often with more leverage to get the better deal — you can never undo the mistake of taking too much venture money too soon at too high a cost.
About the Author
David Webb is a freelance writer and student of human moves. He once beat Grady Seasons in the practice room. He knows that money won is twice as sweet as money earned. You can follow him on http://www.twitter.com/dfwebb
Tell others about
this page:
Comments? Questions? Email Here