How Should You Finance Growth - Your Own Money Or Others'? Five Thoughts

An early stage company is looking at steep financial requirements as it ramps to the next stages of growth. Many companies have bootstrapped their way to success. However, seeking investment may enable the CEO to speed growth. What criteria are useful in evaluating these two options?

Advice from a group of CEOs:

First, ask some important questions. What are you most comfortable with, personally? If you self-fund what is the impact on your ramp timeline, and do you have the expertise to hit your milestones? Is there a time to market concern given your technology and your position versus competitors?

Second, compare resources you need versus the cash flow you anticipate generating. If the difference is under $250K, you may be able to finance through your own cash flow backed by a line of credit. If it is larger but under $1 million, you may require Angel financing. If it is $3-5 million, you may be looking at venture capital financing.

One CEO bootstrapped the company through start-up then looked for outside investment with the thought that outside investment would come with additional accountability and advice - in essence a whip to help move things along. The CEO found that investors brought none of the assets he had anticipated, but only a level of distraction and pain. If you are not aligned with investors in terms of expectations and timelines, outside money may come at a high price in terms of focus and independence.

Raising money takes time and is a major distraction to your development process. On the other hand, you risk working for several years only to find out that funding is not available when you need it. Consider initial conversations with Angels and VCs now. Start the relationship by presenting a broad outline of your technology and model. Seek advice as to what you will need, and what they will want to see to grant you funding at different levels. This gives you an early reality check as to their potential interest in funding you, and also helps to create a roadmap to funding if their response is positive.

Let's say that you seek funding to purchase content to serve through your web portal. Is there another, more creative way to think about content? For example, Can you use a Web 2.0 model and create a portal through which your target audience provides both the content and the consumer audience for a marketplace exchange? This approach can minimize your upfront cash investment requirements, and may create a faster track to positive cash flow.