By: Luis Martin Cabiedes
The current cultural infatuation with entrepreneurship (particularly in regards to tech businesses) means there are a lot of myths and misconceptions about the process of investing in the digital space. It can be easy for new entrepreneurs to be swept away by the siren call of mentors, advisors, and politicians who talk of “entrepreneurship” despite never having started a company. To try and cut through the hype, below I share some practical, commonsense tips on how entrepreneurs can secure financing, gleaned from my decade’s worth of experience investing in the launch phase of tech companies.
Entrepreneurship – Less Hype, More Business
The investment market is immersed in a “double bubble.” First, there is a bubble of excess capital pouring into technology startups, resulting in overvaluations and the inefficient use of capital. The second bubble arises from the excessive reverence shown to entrepreneurs and the potential impact of their projects on economic recovery and job creation. Frankly, it is all a lot of hoopla and nonsense.
The myth of the entrepreneur must be chopped down to size: The first rule to remember is that being an entrepreneur is not about making impressive pitches, or raising as much financing as possible, or entering contests. It is sitting in the office, patiently building a business and, ultimately, creating value and moving a company forward.
Securing Financing — Forget Investors, Think Customers
• Most entrepreneurs are so obsessed with finding investors for their projects, they forget the main source of funding for a company – its own customer base.
• If the above formulas fail to secure enough financing, then it is time to bring in a professional investor. Before investing in a start-up, I insist it has three things: viability (with a specific market and a clear competitive advantage), scalability (with growth potential) and investability (offering a clear path to a return).
How To Stay Alive – The Lean, Customers First Model
Statistics show that the vast majority of startups fail because they do not have a working business model or a product adjusted to the real needs of their customers. I recommend (especially for digital businesses, which are subject to a high degree of uncertainty and business risk):
• Adopting the “lean startup” way of thinking. This means the business approach should also be based on customer development, rather than the more traditional product-development angle.
• The business model and product should also be tested early on and improved over time, receiving input from the customers themselves. It is the only sensible way to meet genuine needs and face market realities.
View source version on Forbes.