Money may not be able to buy happiness, but it can definitely solve common problems for startup founders. Startups are minefields of problems. One wrong step means instantaneous death. As you start to move forward, mines will appear that you have to anticipate and disarm immediately.
Being a successful founder, whatever that means to you, will always be determined by your ability to efficiently navigate this minefield of problems. At a startup, your job is to be a problem solver. However, without proper capital, there are some problems that are simply out of your control.
While everyone has a different outlook on seeking funding vs. bootstrapping, it’s impossible to deny the role capital plays when it comes to solving the problems of startups. Moreover, if you find the right investor, your startup could gain an extremely valuable strategic asset and mentor.
“I have an idea but still need a product”
This is likely the earliest stage in which a startup would seek outside capital. For some founders, product design and development may simply be out of their range of expertise. Investors are great for people that need money and resources to make their product reality. Early stage VC’s and angel investors specialize in product development and product-market fit. Building a product requires resources, and if you don’t have the skills yourself, those resources will almost always require connections and capital.
All startups require money to build a product. It doesn’t matter if you’re bootstrapping or are on your Series E round—developing and distributing a product costs everyone the same. For founders who lack the money or experience to turn their amazing idea into a profitable product, investors are a great way to get the process started.
“I have a product but need to find users”
There is nothing more important than getting your product out there and paying attention to feedback from your users. You can’t “get it right the first time” when trying to build a product that your users love. Some may come close to being perfect from the get go, but most great products require innovation, iteration, more innovation, and more iteration.
Experienced investors will provide the capital you need to find users and have the knowledge you need to properly test your product and implement user feedback. While this process isn’t impossible without capital, having the freedom to build extra versions of your product and test with new users will only decrease the amount of time required between each iteration cycle.
“I have users but want to grow faster”
This is the most common stage for startups to seek the attention of investors. After building a product people want and attracting your first users, it can be quite hard for founders to allocate the proper resources dedicated to growth. Again, this is usually something that comes down to capital and available resources.
The good news is that finding an investor usually solves both of these problems. Seeking funding is great for startups that have a solid product-market fit but lack the resources (mostly capital) to advertise, test, and distribute on a larger scale. Aside from the obvious benefits of more capital, many investors have a wealth of experience that cannot be translated into a dollar amount.
“I have growth but not a big enough team”
If you generate external growth, pretty soon you’ll need to reflect this internally. The only thing more important than the hiring phase is the product itself. Successfully navigating the hiring process requires extensive resources in the form of time and money—something that VC’s and angel investors both specialize in providing. Outside capital gives you more hiring freedom. If you want to sustain and accelerate external growth, don’t skimp out on the finding the right employees.
While it’s important to avoid over-hiring, the size and quality of your team will always control your ability to grow. Believe it or not, creating ads for your Facebook page does not make you a “social media marketer.” If you want to make a quality product with captivating advertisements and branding, you need to hire masters of their craft. However, hiring the best comes with a price. For that reason, seeking funding is a great way for startups to make hiring less risky and accelerate growth.
“I have a big team but need to acquire other businesses”
This is a great problem for any startup to have. If you’re worrying about making acquisitions, you’re likely nearing the end of your reliance on outside capital. Acquiring other companies isn’t cheap, and even the world’s most valuable startups sometimes turn to funding rounds to make larger strategic acquisitions possible.
If you’re looking to expand your startup by purchasing other entities, seeking the help of an investor can add security and streamline the process. Regardless of how much your company is worth, using your own capital to make expensive acquisitions always comes with a substantial amount of risk. Most experienced VC’s have dealt with this in the past and can advise you and your team through the process.
Don’t Make Startups Harder Than They Need to Be
We all hope to create a self-monetizing platform that can completely fund itself, but sadly this will not be the case for most of us. For mere mortals in the startup world, investors are there to help. In short, getting funding shortens the amount of time between cycles of your business. For example, maybe you have exponentially increasing demand but cannot ship your product due to a lack of engineers. Outside capital would allow you to perform the necessary hiring to increase your revenue without having to delay your customers.
In addition to the benefits of monetary funding, finding the right investor will usually give you access to years of business experience and strategic networking. The capital and expertise that investors offer are great tools to help you scale your startup, but remember, your resources are only as good as you make them.