Almost every day someone asks me to help them raise money for their brilliant idea. The answer is always the same. You can't raise money for an idea. With only a few exceptions.
Probably the most sensible way to launch a startup is to start it as a side hustle while staying employed. It’ll take longer, but spending your own money will keep you focused on staying lean and trying to generate revenue as quickly as possible until you can turn it into your full-time job.
Probably the next best is to have a working spouse (or a very big savings account). This enables you to burn your own money without worrying about feeding your family and paying your rent. You’ll still remain focused on revenue and staying lean, as the money you spend on your startup could be paying for life’s luxuries, many of which you’ll have to sacrifice, but it also gives you the flexibility to work at your own speed, without external pressure or interference.
Many founders don’t go with either of these options. They take the leap and commit full time, believing they can build enough excitement and traction to be able to fund their business and living expenses (however meagre) from external investment. This is probably what most first-time founders picture when they think about startups, but it's rarely the reality, at least not before several months of work building the business without funding.
How to start a new software company without experience.
Keeping things simple, there are really only 4 ways to launch your own startup. These are:
- If you have money: you can choose to stop working and fund your salary and startup costs from your savings.
Risk: lose your savings.
- If you don’t have money: you need to keep working and fund your startup costs from your main source income.
Risk: your inability to focus full time will inevitably lead to slow (possibly poor) execution.
- If you don’t have money but have wealthy people in your network: you may be able to stop working and fund your salary and startup costs with your friends’ savings.
Risk: I'd say this is the biggest risk, as raising this money can make you feel like you're already successful. This is not the case. If you can't deliver on your promises, you'll lose the money. It will feel a lot worse than losing your own money and you may feel obliged to pay it back.
- If you’re a second-time founder with a successful exit: you may be able to raise venture capital.
Risk: you turn yesterday's success into tomorrow's failure. Are you sure you don't want to quit while you're ahead?
If you're still at idea stage, these are probably the only options. Unless you're #4 you should forget venture capital. Instead go away and build a business. When you have revenue that’s growing consistently at >7% per month, or no revenue but a user base that’s growing at >7% per week, it may be time to start thinking about VCs again.
– Featured image by Arek Socha.