In Silicon Valley, Investors Insist on Seeing Traction
To Get Funded, You MUST Demonstrate Traction
I live on the peripheral of the Silicon Valley startup ecosystem. I attend pitch events regularly. I see how real Angel and Venture Capital investors respond to the startups who pitch to them.
The single most important thing I’ve learned is…..
Those investors are no longer willing to fund the cost of what they call “the experiment”.
The experiment is you as an entrepreneur proving that real people will spend real money in exchange for whatever it is that you’re selling.
The tone they project when talking about this is when they’ve funded the experiment in the past, the entrepreneur was not careful with the money. Perhaps because it wasn’t their money.
So today, the cost of that experiment falls squarely on your shoulders.
The word used is “traction”. If you want funding, you need to prove you have traction. This means you have real customers and some track record of revenue.
When in Your Startup Life Cycle is Funding Available?
Funding is available when you have a proven business model, but a proven revenue stream, and prospects for enormous growth.
If your business fundamentals are bad (for example if you incur $15 of direct cost for every $15 of revenue you receive) you will not get funded.
If you have no sales you will (most likely) not get funded.
If the expected growth of your business is a meager 30% a year, you will not get funded.
When MUST You Bootstrap Your Startup?
Simply put, when you can’t get funded. If you’re doing the business because something burns inside of you and you feel a compulsion that it must be done, you’ll find a way to bootstrap.
The Startup Angela and Investor Funding Process is a Filter
It doesn’t just filter out bad business ideas, it filters out entrepreneurs who are not committed to their ideas.
I’ve heard a lot of investors state they invest in “the team” and not the business per se. A great team who fails with idea #1 will regroup and move onto idea #2.
However the investor who put it best is Carol Sands of The Angel’s Forum.
I’m not going to get it word for word, because it was a few months ago, but the gist of what she said is….
If the entrepreneurs who start the business cut and run when the going gets tough, and sooner or later the going always get tough, then the investors lose their money. The last thing the investors are going to do is to take over the business and run it day to day. That’s not what they do, that’s what you as an entrepreneur does.
This next phrase is mine, but I think it encapsulates her words well.
When you successfully project an attitude of “we are going to do this or die trying”, you’re much more likely to get funded. If your commitment to your idea feels weak, you will not get funded.
Proving Your Commitment to Your Idea for Potential Investors
Bearing in mind that it’s hard to prove an intangible, the way you prove your commitment is to bootstrap your business using gumption and shoe leather and whatever else it takes.
Did you ever hear that when Michael Bloomberg started the business for which is now famous, he spent two years knocking on doors before making his first sale. That mans knows the meaning of commitment.
Once your business has started to catch on, you can probably obtain funding to help it grow quickly.
Need to Increase Visibility: Ever Heard of Inbound Marketing?
When you’re bootstrapping a business on a shoe string (Bloomberg had the luxury of a $10M severance check to hold him over) you need a cheap way to gather your audience and generate leads.
The name of that cheap way is Inbound Marketing. It is where you make it easy for your prospects to find you online.
Trick question: Why did Borders go Bankrupt while Amazon thrives?
Answer: Amazon got the importance of the online business, Borders didn’t.
There is no magic or mystery to Inbound Marketing and any agency or consultant who implies there is should never be hired.
To learn what Inbound Marketing is, how it works, and why you should care, watch the 5 minute video by selecting the button below.SEO Needs Link Building