Let’s be honest, fundraising is a major chapter in every startup’s success story. It’s one of the most exciting, terrifying, and rewarding parts of starting a company. Having a stranger write you a check for six or seven figures not only validates your idea, but it validates yourself as an entrepreneur. Clearly, others believe in you enough to put their money where their mouth is. I myself have raised over $1 million for my startup, Buddytruk , as well have written several articles on how to fundraise for your business and how much to ask for. That said, there are several reasons why you should not fundraise when starting a business, and given today’s venture landscape, now may be a better time than ever to bootstrap your company to success. Here are five reasons you should pass on fundraising and investor meetings in 2016:
1. Money can’t solve your problems.
By far, the most common mistake every founder makes when starting a business is adopting the mentality that “if only we had $X, we could do this.” I’m here to tell you, that’s simply not true. More money in the bank account does give you more ‘options’, but more times than not, especially as it relates to a startup, this means more ways to spend money you shouldn’t be spending, on people, marketing, offices and equipment you can’t really afford. I can’t believe how many startups raise money and go straight to spending it on “swag.” I’m sorry Pied Piper, but I do not want a t-shirt or coffee mug with your logo on it. Money should be used as a tool to generate more money, not to prolong the life of your poor business model.
2. You’re in business to make money.
If thinking “money can solve my problems” is the most common mental mistake founders make, thinking “I need to do X so I can raise more money” is a close second. Several startups, including my own at times, spend way too much time trying to hit growth metrics that will help “secure more funding” instead of finding ways to turn a profit. I remember a time at Buddytruk where we were told that if we could do X amount of deliveries a month, we’d be a very attractive Series A investment. So what did we do? We dropped everything and chased that metric exclusively. We gave out huge discounts to use the product, including first-time free deliveries and marketing to users who would have never otherwise used the product. We ended up hitting that metric, but it almost bankrupt the company.
3. Fundraising is not running a business.
Most startups have a very small team, maybe only a couple of people, and as a founder, you may think your job is to fundraise. You’re right. But for the most part, fundraising takes you away from your business, which can be catastrophic when a company is in its infancy.