Yesterday, I had a lengthy call with a potential client. We discussed their current situation and their short and long term goals for their company. They have not seen the growth in customers they expected. Their revenue is far short of original projections and he fears he will not be able to raise the funds he anticipated in 2015.
The technical problems are simple to fix. It basically comes down to a lack of focus on getting the high priority roadmap items addressed to support the sales efforts. Oh, and actually documenting, prioritizing and tracking those roadmap items. He fears his developers can’t be autonomous enough to let him focus on the fundraising process to get things back on track for 2015.
After listening to all of this I recommended he put off trying to raise funds for at least a quarter. He was surprised and said his job is to get the funding needed to support the employee growth plan for 2015 and 2016.
No, your job is to get more customers and generate sustainable revenue. Without those you will have a very hard time in raising capital at all and any you are offered will be at very unfavorable terms.
I’m not sure what path he will take with his 8 month old company but I am certain of a few things.
- Getting favorable funding for your business is much easier when you actually have a business with customers and revenue
- If you make chasing funding your job you will neglect your customers and risk everything
- Your headcount growth should be aligned with your actual customer and revenue growth
- If you hire based on projections you have to fire based on reality
- You will find the really good talent out there expects imminent results just like the funding sources you are courting
- In fundraising, just like sales, if you are desperate it will show
- The best time to raise your first round of funding is when you have proven the concept is viable, you have customers willing to be positive references and demonstrated revenue growth
- The earlier in your start-up’s life you raise capital, the more expensive it will be
- The longer you can bootstrap your growth, the less of your company you will give away to the money people.
In short, focus on your customers. Get the word out. Get some good press. Let the money find you. If your idea is sound, viable and profitable the money people will find you and you will end up with a much more favorable term sheet.