The United States produces more unicorns and startups each year than any other country, but 90% fail. Cash flow is often a significant problem.
There are many options available to entrepreneurs looking for funding for their businesses. Most choose equity rounds. Venture money is plentiful and many tech entrepreneurs are happy to accept it in return for equity. While this works for some founders, too many find themselves diluted by their equity and unable to recover the rest. Instead of considering other funding options such as debt capital, they end up losing their company's options.
Even if you're growing fast, founders may not want to establish a company valuation. You can also offer convertible debt to investors in this case.
Despite the VC flurries in 2020 creating an ecosystem of seemingly endless capital, it is important for founders and entrepreneurs to realize that there is no one-size fits all model for raising capital. Entrepreneurs should also consider debt capital. This is capital that can be raised through a loan.
Understanding your company's goals and objectives will help you understand the true cost of venture debt.
Understanding your goals
Today, we see two types of startups: those that are open to trying new things and those that are focused on making things simpler, faster, or cheaper. The first social media, such as Instagram, Twitter, and Facebook are examples. Because they replaced familiar incumbents, discount airlines, integrated circuits, and cell phones (not smartphone) are all examples of the simpler, faster, cheaper variety.
Entrepreneurs are always eager to try new things and I admire them for that. If you are successful, carving out your own market can be a quick way to become an entrepreneur superstar. It can be distracting and impractical if your primary goal is to become famous.
Many people believe that category creation is safer than incumbent disruption. But patience and strategy are key to getting to where you want to go, provided you're faster, cheaper, and easier.
There are many funding strategies to suit your goals, just as there are various market approaches. If you are a young startup looking to establish a market, and need validation and experience, it is a great option to consider investing with a VC firm. Trusted advisers are available from these firms who are laser-focused on growth, and have the experience and resources to navigate the tricky waters of category creation.
