I cannot tell you how many times I have seen executive summaries of business plans in which the entrepreneur seeks $5,000,000 to build the business.<\/p>\n
First, few startups can use that much money today with all of the virtual services available and increasingly inexpensive methods of development, prototyping and marketing. Second, almost no professional investor will consider putting that much into a startup until there is proof of market demand, product viability or some other mitigation of failure.<\/p>\n
Third (if you\u2019re keeping score), it is not wise to dilute the founder\u2019s ownership greatly in the first round of financing.\u00a0 The investors want a motivated entrepreneur, and it is certainly more difficult to motivate a twenty percent owner than a sixty percent owner.<\/p>\n
Fourth, there is the matter of control.\u00a0 Entrepreneurs have a vision for what and how to create and build a great business.\u00a0 Giving control over that vision to others early on often dilutes the vision and is a disincentive to the entrepreneur.<\/p>\n
[Email readers, continue here…]<\/em><\/span> Professional investors love to see companies where the first round of financing came from the entrepreneur, showing \u201cskin in the game\u201d and more motivation to succeed because of money invested as well as time and creativity.<\/p>\n There are so many resources for early money to validate an idea, turn it into a product and increase the value of the company before professional investors come into the picture.<\/p>\n Starting with credit card debt or a personal loan and working through money from friends or family, or simply consulting to earn money for investment, entrepreneurs should consider early resources for capital to produce a prototype, do market research or start to build a team.\u00a0 Once there is progress in any of these critical areas, raising professional investment is easier and the likelihood of a higher valuation makes for retention of more equity during the first important professional round.<\/p>\n","protected":false},"excerpt":{"rendered":" I cannot tell you how many times I have seen executive summaries of business plans in which the entrepreneur seeks $5,000,000 to build the business. First, few startups can use that much money today with all of the virtual services … Continue reading