Why Fundraising can be Disastrous for your Startup
The world of entrepreneurs has changed dramatically over the past few years. In the startup world, however, there is a sense of roaming, i.e. one has to raise the fund to successfully launch the business. By this notion, as some famous start-up stores start with dramatic investor pitch, young entrepreneurs are standing in the live or die situation in their fundraising quest.
What if I told you this could be a bad idea if you want to raise funds? Most entrepreneurs believe it will help build a better business by recruiting investors and raising money. Well, there are several reasons why it may not be beneficial to raise funds. What’s worse, it might even be harmful. You’re going to learn about these explanations today. And, if you want to raise money for your startup, you’ll learn how to avoid them.
Is it too early to raise Fund for Your Startup: Fundraising
If investing in a new business is just your own money and time, you can halt a venture at any moment. The minute you’re interested in friends and family, you’ll feel more pressure to make your company successful. Of course, by working with VCs, you can keep it less personal, but if you go this route, you will give away a lot of equity in your company.
If you can, consider bootstrapping your company and using existing resources until you are sure of the direction you want to go and what you really need to get there. That way, if you choose to concentrate on another project or find that you don’t enjoy running a business, you have an out.
Don’t raise money just to compete brutally:
A startup’s main goal should be to solve an issue that has not yet been addressed by other companies. A startup is important when it provides something different, something that does not yet exist in the market.
If a company has to hurry to quickly raise funds to beat the competition, it means that its service is not innovative enough. Wouldn’t it be better, in this case, to turn towards another space without competition?
Raising Funds can Distance Founders from Their Product:
Ideally, founders should play a hands-on role when a startup is launched, advancing the product and the company and boosting its growth. The raising of funds, although it may tackle problems related to growth, does not leave the time necessary for entrepreneurs to ensure that their business model is in line with their market.
Many startups can rely on growth metrics to convince potential investors to secure the next round of funding. The issue is that some companies can focus solely on these metrics to get more money, shifting their focus away from generating profit, in place of building a viable business model.
Therefore, for a small and fresh startup, raising funds should not be on the priority list. The allocation of resources is genuinely non-negligible for the growth of a business. If one of the founders is not fully present, there may be a real shortcoming.
Lastly, there’s a personal development issue. Setting aside time to raise funds would, of course, make the founder a better fundraiser, but not a better CEO. Spending a lot of time away from their main tasks when their brand is still not stable, would certainly lead the company in the wrong direction.
Fundraising Can Hamper Your Focus:
Fundraising ‘s potential downside is that it can disrupt your attention. You start focusing on how to get money instead of focusing on building your company and starting it up. Have you ever heard of the proverb that “The man who chases two rabbits, catches neither?” The same thing is happening here. What’s your focus? Will you work on your product? And, are you working to convince investors on your pitch? Even though you can focus on both at the same time, the top priority must be one of these issues.
You should think about what your priorities are before you decide to raise funds. As we mentioned, it takes a lot of time to collect funds. It’s not just a couple of days. It’s possible that increasing the amount of money you want will take you several weeks, if not months. So, what is your priority number one? Think about this before you answer “both.” When all are a top priority, nothing is ultimately the top priority. You concentrate on being blurred. Multitasking doesn’t work.
Think of your focus as a glass magnifier and of your work as light. You can spark a flame if you aim it at just one spot. Now, try to do that at the same time with multiple spots. Still, what if the commitment can be broken somehow? For example, devoting 80% of your time to develop a brand and company and 20% to fundraising? Okay, this is something you can do. Nonetheless, raising the money will take you a lot more time. Isn’t concentrating on the brand safer and encouraging investors to come to you?
Conclusion: Fundraising is not the solution:
As an entrepreneur, in a minimal budget, you can either start or bootstrap. But, when the time is right, you need to be smart enough to consider new investments. Until now, you have to build the service or product that separates you from the huge crowd. Whether you’re thinking of raising funds or going for bootstrapping, the consumer must, in any case, be your top priority. In this competitive business world, this will make you win big and you will soon be able to realize your dreams.