Startup geek around town

Funding & revenue = chicken & egg

Over the past quarter I have been investigating different types of financing that may be available for today’s technology entrepreneur.  I looked at this challenge from the perspective of a brand new software company ready with their first product and preparing to enter the marketplace.   Here is the summary of my research:

You are on your own until you are earning money.

I’m sure that this is no surprise, but many of the entrepreneurs I meet have their hopes set on raising an Angel round to get over the start up hump. Traditionally Angel investors believed in teams of people and their ideas.  They invested small amounts frequently and spread their risk over many opportunities.  This environment is changing.  Angels are congregating into groups and those groups are aggregating money and looking for the one big win.  According to several senior advisers I met during my research, the investment flow into pre-revenue companies has nearly stopped.

We all know that getting a business off the ground is expensive and time consuming.  It’s difficult to be a part time entrepreneur and being full time means you have $100k of your own money in the bank to pay the mortgage & expenses.  Unfortunately that’s not the case for most entrepreneurs.  So you have to be creative. You have to set your expectations properly and you have to do what it takes in the short run to get to the goal you set.

What are the alternatives you may ask?   I think that you have a couple choices.  If you already have a job, then you should keep that job to maintain an income.  You’ll spend your weekends and after work hours on your start up and you’ll build the business to a point where you can extract enough revenue to pay the bills.  You may also borrow money from friends and family to pay for the big start up expenses and marketing expenses so that you can turn the corner and build revenue.

The second option is to be a part time consultant while you are a part time entrepreneur.  This option seems more attractive, but in reality is very difficult.  As a consultant you have to go out and find business, and there may not be any business for the services your provide.  You also have to manage all the aspects of that business like marketing, time keeping, billing, etc. This puts you in the position where you are building two businesses.  Not impossible, but difficult for sure.

There is a bright side to all of this, ownership.  By going at it alone you and your team own 100% of your business.  You will retain control over the vision and direction of the company.

Thus, just like Joe the Plumber, Mike’s Pizza shop and Sally’s Beauty Salon, we as technology entrepreneurs are now forced to learn how to make it on our own.