On Funding

This entry was posted on Feb 10 2012

Ant likes to send me articles. Lots of articles.

Being the good friend I am, I read them all. Maybe not in a timely manner, but I read them.

Recently, he sent me an article advising people to refrain from self-funding. The author says that from their personal experience that self-funding is a bad idea, though explicit reasons are not given for this, and that outside funding is the way to go for everyone.

Now, I used to work at Cardlytics, and one day, I asked Scott Grimes, who used to work in venture capital, what a person needed to get investment from a VC firm. These are the things he told me:

1. Your idea must be attractive to a large market of people.

2. Your idea needs to something that can grow really quickly. Most investors are looking to exit from the investment in 5 – 7 years and are looking for a return of 7 to 1. That is, seven dollars for even one dollar invested.

3. A proven track record. This means that you need to be able to show that you can grow a business. This doesn’t necessarily mean that you have to have started a business before, but that when put in charge of a business, you led it into a period of expansion. It also means that you need to be able to prove that you can provide a product or service in a timely manner. You may have great ideas, but if you can’t produce, then investors aren’t going to be interested.

4. Customer testimonials. You need to be able to provide proof that your idea or your business can meet the needs of your audience. This can be either for your current idea or from business you have grown in the past. Investors want to know about you as a businessperson.

5. A good business plan. Now what constitutes a good business plan? Being specific about who your audience is, what your product or service is, what your needs are, where you need improvement and your realistic expectations of growth along with your rationalization for that expectation.

Even after providing all of that, VC firms only invest in 10 – 15 companies a year. Angel investors even less. The fact is that outside investment is hard to get, and chasing it can pull you away from your business, so don’t let the lack of outside funding deter you from pursuing your business. Most companies are self-funded and by doing so and succeeding even modestly, you will be able to provide those things that investors are looking for.

About jkempf

James Kempf, CEO of Cliché Studio, has made two games for Mercury Retrograde Press, learned from managing the comics at Criminal Records that John Stewart is the best Green Lantern, and once happily played a 12 ft. dwarf in Rifts.