When startups should not raise money from angels/VCs

A lot of time is spent in startup circles discussing fundraising rather than business ideas and viability.

No_VC_Angels

Startups must stay focused on the business and its profitability rather than securing investments as the primary goal. If the entrepreneur stresses on commercial viability, the employees recognize that cash generation is of utmost importance. Once a strong business is built the entrepreneur is in a better position to seek funding.

Raising early stage finance is generally a demanding process, which takes up a lot of time, commitment and emotional involvement, which must have been directed towards building the business and meeting customer’s need profitably. Also, external capital comes with demand both in equity and time. There are obligations for results and it limits the ability of the entrepreneur to make independent decisions. So unless, the entrepreneurs have made plans, like a strong execution team, to stay focused on business while trying to raise funds, they must not pursue angel/VC money.

On the other hand Angel and VC money has its advantages – entrepreneurs not only get capital, but also get the vast experience of active VCs, who might prove connectors for you in the industry and help you make decisions. Raising private equity from VC and Angels is a straightforward process and does not require complex permissions/regulations that are a part of raising public equity/debt. And sometimes, the business can benefit from the publicity of the investment,

Reference: A Guide to Early Stage Investment by Alan Gleeson.

Disclaimer: This blog is my personal perspective of this and is not intended to constitute legal advice.

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One thought on “When startups should not raise money from angels/VCs

  1. Interesting write up and strongly agree. Focusing on having a working product will make raising funding a lot more easier. Over the last few years VC investment are declining and Angel investments are raising. If you look at the 2013 stats, the VC investments totalled $20Billion but Angel investment exceeded $25Billion. This shows that entrepreneurs refer Angel investment, as most of the angles have been entrepreneurs before and have a more realistic expectation on the return and the timeline.

    Interestingly Alan Gleeson was at the Said Business School for a talk last week.

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