John Mullins in his HBR blog VC Funding Can Be Bad For Your Start-Up gives enough arguments on why entrepreneurs should avoid them as much as possible and when not possible delay them in the lifecycle of their enterprise. I agree with each of their arguments. I am happy to see that there is some study that shows that most successful businesses are built without the investor’s money or as they say funded by the customer’s money. I hope there is a formal study done to co-relate the success probability and investment amount or the stage of investment.
I have always maintained that investors take a major chunk of energy, that entrepreneurs should ideally be spending on building their businesses, understanding and engaging with the customers. Anyone you gives you money would demand many things and would potentially dictate how you should be doing things.
Entrepreneurs can potentially put themselves in the a Venture Capitalist’s or investor’s shoes and try to understand – why they invest in a new business that is yet to prove it mettle in the market and can potentially fail too. I am sure even a small introspection would tell them that they invest to multiply their investment and that is their single point goal – mostly if not always. And they would want this multiplication as soon as possible, that is why you see lot of investments happening in the scaling up stage of the businesses.
I spoke to a few investors for the research of my book The mouse Charmers, though funding and investors was not the angle I was covering but I thought it may still be a good idea to take their point of view was and I realized the only metric that matters to them is Return on Investment. To me, there is a bigger purpose that businesses serve than just making their investor’s money grow.
Having said that ‘ Can we totally ignore the investor community?’ , ‘Can certain businesses be done without major investors?’ – The answer is obviously No.
I think even investors are at potential risk of businesses that are built solely to tap into an investor fund without any intention of building a business in the long term.
Do read the John’s post for his arguments that I have not repeated in this post.