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Q How can we get our company funded

Written by: Seth Godin

Article Overview: Q: How can we get our company funded

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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Article Tags: economics, exceptions, expectation, money, next level, own real estate, rational investors, sleep, smart idea, specialty school, spreadsheet



Related Forum Posts
Negotiating Equity Ownership - I would give up ownership for the right investor. Some entrepreneurs end up giving too much of their company to get funded but this isn't usually the case. I think too many entrepreurs are selfish and forget that without the money it will be very hard to get the company off the ground and it will never hit the success that the entrepreneur wants it to hit. Sure, the investor will make a lot of money off of you but that's only if you succeed and you need the money to get there. I'd rather have a small part of a very big pie than 100% of nothing!
Re: Review My: e-product sales letter - I guess I'm a little late here since you wrote this in 2010, but I found it to be very well written. I appreciate reading from an expert like you Evan! I think you did a great job of using bold and italics to emphasize your points, but I think there are some areas where they may not fit as well (i.e. "wouldn't stand a chance of getting funded"). However, I think you hit the nail on the head here. I am putting together a sales letter myself and will use this as a starting point.
Re: Is A Business Plan A Waste Of Time? - A business plan is never a waste of time. A friend of mine was funded by the quality of his business plan. The banker looked at his business plan and concluded that he knows what he is doing.
Licensing and Exclusivity - Is it better to receive a license from a company to provide a product to a certain region before of after your company is established? Ex. XYZ is a small company that manufactures cars and sells them in Europe and I want to get their cars licensed from them and be the sole provider of their flying cars in Asia. So would it be better for me to establish a company first or first get the licensing then build the company after? Any input would be greatly appreciated.
New User and looking for advice - I am a business owner who recently decided to launch a couple websites. I have always done this solo, but recently excepted technical help from a friend. I would like to have her involved in my business and potentially make her a partner, but I do not know what is fair and what the agreement should be. I started the business, funded the venture and of course the ideas were all mine. Any, any, any advice on this topic would be greatly appreciated.


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