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The Big Red Fez

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V Is For Vulnerable

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We Are All Weird

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Whatcha Gonna Do With That Duck?

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Q: How can we get our company funded

A: Don't.

I'm frequently asked (by friends, and sometimes, aggressive strangers) to help them find someone to fund their company. Often, but not always, these people are happy to hear the following answer.

1. If you fund your company, even a little, you've just sold it. Maybe not today, or tomorrow, but one day. That's because rational investors are funding your company in the expectation that you are going to sell it and make them a profit. (sure there are exceptions, but not many). So, if you don't expect that your company will be easy to sell for a big profit, or you don't ever want to sell your company, it's not a smart idea to raise money for it.

2. Most companies are not appropriate sites for VC money. That's because they're freelance ventures, not entrepreneurial ones. A freelance venture is one where you work to get paid. An entrepreneurial one is where you can make money while you sleep. Meaning that you work really really hard and you scale and suddenly you own real estate or media properties or technology or a system or a brand that people pay for without you actually doing any incremental work yourself.

3. One friend ran a very successful specialty school. He decided he wanted to start a division that would sell books about his system. The numbers on the publishing side were terrific (on the spreadsheet). The investors wanted 40% of the existing business in order to put up sufficient money to recapitalize everything and bring big company thinking etc. etc. I pointed out that this would not only ruin my friend's life, but probably cripple the economics of both businesses.

The alternative (which might work for you as well) is not to fund the business. It's to fund the project. That's how they fund movies. You don't get a piece of the studio. You get a piece of Rocky XIV.

If you've got something that works and you're ready to go to the next level, consider funding the expansion with the payoff being a scaling piece of the project. Maybe 100% of the proceeds until the investment is repaid, then 25% after that, forever. Once that project pays off, you'll be able to fund the next project, probably on even better terms. And on and on, with each project having, if you choose, different investors and different payout streams.

4. The real lesson is this: if you absolutely need a lot of money to do a particular business and the terms you'll need to accept to get that money are unacceptable, find a new business. Nothing wrong with that. The market might be trying to tell you something.

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Listed below are links to weblogs that reference Q: How can we get our company funded:

» Getting Funded Y or N from Moments of Clarity
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» Just Say No from John Winsor
Seth's got a great post today entitled: Q: How can we get our company funded? I couldn't agree with his answer more; Don't. After starting a handful of companies, all self-funded, I have always been scared half to death of [Read More]

» Are you seeking funding for your business? from Adam Dudley
In a recent blog post, Seth Godin, non-traditional marketing guru, handles an important question regarding the financing of business ventures that I think many of my Evolving Entrepreneurs should read. The question is: “How can we get our company funde... [Read More]

» You Dont Want Funding! from Business Opportunities Weblog
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» Q: How can we get our company funded from Startup Fever
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» Devin's Definitions: Bootstrapping from MidMarketMaven
Seth, you are dead right. That said, most businesses are either conducive to venture capital or to bootstrapping. Entrepreneurs rarely havea choice. [Read More]

» Godin on Financing Your Startup from Zmetro.com
Seth Godin:I'm frequently asked (by friends, and sometimes, aggressive strangers) to help them find someone to fund their company. Often, but not always, these people are happy to hear the following answer. 1. If you fund your company, even a... [Read More]

» Freelancing vs Entrepreneurship from b.cognosco
This past weekend I attended a friend’s wedding, and the reception was a very nice dinner party. There were five other people at my table – two couples from which I knew one partner each, and a lady who was seated with us because her husband was in the... [Read More]

» Why Seth's "Don't" is 95% Right from Startups and angels: Along the way to success
Here's a succinct comment by marketing guru Seth Godin on funding companies. Every entrepreneur thinking about funding a business ought to read it. Don't, he says. Inevitably, investors invest in entrepreneurial endeavors because they believe in the en... [Read More]

» Fund the project, not the business from Ayende @ Blog
Fund the project, not the business [Read More]

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