My initial start up is a “big idea”. Big ideas tend to need big funding. I think a lot of entrepreneurs get caught up with trying to figure out how they’ll fund their business rather than focusing on getting it off the ground in the first place. The general rule of thumb is the fewer partners you have to take on and the less initial funding you require to get your big idea into or past the development stage, the better.
Any investor angel or otherwise only has one thing on his mind when writing a check, “what’s your exit strategy?” It’s an important question. If you put money into a business, you expect to get more money than you put in out of it. And, it’s a fair proposition. The trouble comes when you take financing too early and erode your equity. Strictly speaking, an idea isn’t worth anything. You have to develop it in order to build value. The higher the valuation at the point you take your first round, the lower overall impact to your equity. It’s simple really.
Bootstrap as much as you possible can in the early stages. Tap knowledgeable friends. Do your own research. If it’s a technology start up, find a friend who can do it and offer sweat equity in return for their moonlighting efforts. At minimum, get a prototype in place before you stretch out your hand. Once you do, there’s no going back.
Speaking of moonlighting, if you are currently working full-time separate your work (paycheck) from your start up. I can’t emphasize this enough. Be loyal to your employer and keep producing great results at work. To the extent possible, don’t let your start up life creep into your work life. If, like me, you’re in senior management, share your idea with your CEO. You never know what he might be interested in investing in next. But, don’t do your start up on his time. Seriously. When you are honest, produce results and avoid conflicts of interest, you preserve your most valuable commodity — namely, your reputation. I think Buffett also said something like, “it takes 20 years to build credibility, but only 5 minutes to ruin it.” Manage your time and you will get there.
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