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Money

If you find yourself sitting in front of your business plan and the only question that you’re asking yourself is how you will manage to raise $3 Million in venture funding, you might just be looking at things backwards. One key trap that entrepreneurs fall into is that they think that money is the solution to all of their problems, when in reality too much, too early can be the cause a quite a few more. Here are 5 reasons why less is often more.


Why You Don’t Need External Capital

1. You can manage growth. Especially in the early stages of your business, you want to carefully manage growth. If your technology is not at the point where it can scale, you could have all the money in the world and it wouldn’t help you at all. Limited funds helps you keep your eyes firmly on the most important thing — building out your product.

2. It forces you to be smarter. Cash and creativity are often inversely related. One of your jobs as an entrepreneur is to learn how to manage limited resources. Cash will always be tight and cash flow is key. By limiting the amount of money you have to blow in the early stages of your growth, you give yourself the opportunity to build up your intuition.

3. You retain more control. Unless you have strong revenue, any fund raising effort that you make is going to cost you equity. In the beginning, before your technology is solid and you have traction in the market, it’s going to cost you a lot of equity. If you’re willing to do more with less, it means that you will have the luxury of retaining a greater controlling interest in your venture.

4. It frees up time. Hunting down funding is a taxing process. Since you only really need money for hiring, infrastructure (technological and physical) and the other odds and ends that crop up, if you can spend within your means and are willing to hold off the search for capital, you free up hundreds of hours which may be better spent working on the product.

5. You don’t need outside funding. Most startups do not need outside funding to gain traction. If you need dozens of servers or hundreds of coders to get your project off the ground, then certainly you might want to go out in search of backers; however, seeking early capital is often more a problem of team and scope than it is a problem of money. Is your product suffering from feature creepy? Do you need to find another partner with the technical / business skills to fill your needs? These are questions you need to ask yourself before going out in search of venture funding.

If you don’t, your prospective investors certainly will.

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