Flipping the finger to VC money.

Even though it seems that every and all start-ups are chasing the VC dollar it seems that there are good reasons NOT to do so.
Tom Foremski lists 7 reasons not to go looking for VC money and why it makes sense not to do so:

-If you start by selling your concept to potential prospects (rather than stock to VCs), you will either end up with initial customers or a conviction that your idea won't work. Why raise money and then find out which one it will be?

-Raising money takes time away from understanding your market and potential customers. Often more time than it would take to just go sell something to a customer. Let your customers fund your business through product orders.

-Adding VCs to the mix early gives you an additional set of masters you must serve in addition to your customers. It is always hard to serve two masters, especially in a startup.

-With no money you can't make a fatal mistake. This is a blessing. Without VC money, you are forced to figure out how to extract funds from your customers for value you deliver. Ultimately that is the only thing that really matters.

-Money removes spending discipline. If you have the money you will spend it - whether you have figured out your business model and market or not. -Raising VC money determines your exit strategy. You will either sell the business or take it public. What if you end up with a very profitable, modest sized business that you want to just run? That is no longer an option once you raise VC money.

-You sell your precious equity very dearly before you have a proven business model. This is the worst time to raise money from a valuation perspective. I know this is a contrarian view. And some of you are saying that might be fine for a small company.

-Don't forget Dell, HP, Microsoft all originally started without VC funding; you can build a big business with bootstrapping and without VC money.

I can't say I disagree completely with him...

No such thing as a free lunch..

I came across a very interesting and "on the money" blogpost today.
Hank Williams (no not that one!) writes about the culture of free, the addiction of scale and the lack of sustainability in a lot of "web 2.0" ventures.
There are a plethora of "companies" out there that really offer no more than a nice gimmicky idea or a handy service. Their product/service/idea/whatever in itself is not something that a sustainable business can be build on. the only way they can attract users is by offering it for free.
That way they chase users which calculates into hits to their site which in turn makes their site interesting real estates for advertisers.
So basically their whole business model is built around nothing more than a virtual billboard offering advertising spaces. They use their product/service/idea/whatever solely to attract viewers to these billboards.
According to Hank it is all VC driven. VC's will give certain start-ups funding but expect them to grow rapidly so that the VC can make a quick exit and keep their primary investors happy.
This does lead to a business model that is not sustainable in the long run. If you attract users/viewers to your site by offering a service/product for free they won't keep coming for ever. After a while they will move on tho whatever is the next big (free) thing and your exposure rate will drop and your advertisers will run with them. leaving you with a product that you have been offering for free and now have to start charging for in order to survive.
Now I am not saying that this will never work but it this model can be seen more and more. A lot of current web based business seems to display lots of bling but no business sense...

A passion to succeed.

I always enjoy reading Mary Schmidt's blog. She provides a no-bullshit insight into marketing and business development. Last Friday saw another great post titled: "Start-up success: Look stupid, Be silly!". It touches on something that I have noticed quite frequently while interfacing (i.e. talking) to other enterpreneurs. A lot of them seem to lack a real sense of passion for what they are doing or if the do have passion they are afraid to show it just in case it is seen as a weakness. Off course every enterpreneur has a passion for success because of the financial benefits of this success. However it is important too succeed and to be taken seriously be VC's & Angel investors that you display a passion for what you are doing. You should excude an absolute conviction in the benefit & success of what you are doing, you should radiate an complete belief in the benefits of your product/service to your target audience and you should love what you are setting out to do. And not only because of the financial benefits that it will hopefully bring you.
If you cannot convince yourself that your service or product is the best thing since sliced bread how can you ever convince your customers?
If you do not enjoy doing what you are doing you will not have a hope in hell in inspiring your employees!
And if you cannot convince your employees that they should give their 100% devotion to the job and your potential customers that they should choose your product over the competition's than how are you going to convince an investor to put their money behind you?

E.