Planning a new venture or looking to boost growth inevitably involves a financial plan and that includes the all-important question of funding. So, how much do you need and where is it going to come from?
Do you go it alone and bootstrap, making savings working several jobs to build up personal investment? Do you knock on the door of your family and friends and ask for their investment? Or do you or do you pitch to business angels and venture capitalists? I built my business on hard-earned personal funds. Five years on, and the Bilingual Bus is a successful enterprise but I can’t help wondering, what would my business look like now had I sought outside funding?
The wider entrepreneurial community has differing views. VC Mark Cuban claims that "only morons start a business on a loan", Guy Kawasaki warns that "you should always be a boot-strapper... too much money is worse than too little" but goes onto to suggest "if you do get offered venture capital, take it, but don’t spend it".
Much depends on the nature of your project and how much investment is required but much more depends on your personality and your relationship with money. You have to feel comfortable with your choice because you will be responsible for the success or failure of that investment as your project unfolds.
Here in Paris, I asked some fellow entrepreneurs about their funding experiences, how it has affected their businesses and what works best – bootstrapping or investor funding?
Curtis Bartosik is a seasoned entrepreneur. Having run businesses in Silicon Valley and in Asia, he is now based in Paris running his communications and consulting company, Seneca. He is also on the board of the American Chamber of Commerce in France.
Through experience, this entrepreneur is a firm believer in avoiding OPM (other people’s money). Instead, he bootstrapped to secure funding, working two jobs for two years to finally take the plunge and be his own boss.
How has personal funding helped your business?
Without accepting OPM, I can own all the shares and enjoy the eventual upside. In a previous experience, I worked for a company that took on debt from a bank. The bank and investors ended up owning 100% of the company and the founder was forced out.
What would your business look like now if you had used outside funding?
It’s probably fair to say that there would have been some faster growth.
What are the three pitfalls to watch out for when using personal funds?
Don’t be over-cautious, don’t limit yourself but know when to stop if it’s not working out.
What advice would you give to entrepreneurs considering using limited personal funds?
Like with gambling and going into a casino when you say, "I will gamble 200 euros and no more”, you have to define your limit. Define how long will it take and how deeply will you dip into savings... and into retirement funds before you pull the plug. If you borrow from friends and family be up front and honest with them about how long it might take to pay them back
Happy Families is an ambitious project launched in 2013 by Bastien Yverneau and his sister, Garance. Their family-freindly centre offering everything to make a family happy whether it be babysitting, hairdressing, yoga or even just a coffee… it’s all under one roof in the Chatelet area of central Paris. This project needed funding on a large scale, there was no other option... or was there?
How has funding helped your business?
External funding was a prerequisite since we did not have enough personal funding. Therefore, our project would not have been started without it.
What would your business look like now if you had used personal funds?
Without external funding, most likely it would have been impossible for us to succeed in starting our project. At the very least, we would have had to scale it down a lot, which would have been quite an important setback.
What are the three pitfalls to watch out for when your project is funded by others?
Firstly, make sure you gather credentials. The hardest part is to actually succeed in gathering the money. Few investors are actually willing to invest in ‘paper projects’. You need to gather as many credentials as you can as early as you can - media coverage, market study, early community of clients, etc.
Secondly, choose your partners well. You should be careful with whom you are partnering with. Some investors might not have the same vision as yourself and since they will inevitably be involved in how the project is developed, some misunderstandings (or worse!) can happen along the way.
Lastly, don’t sell yourself short. It’s important to negotiate for a reasonable company value, so be careful not to give away too many shares at a bargain price.
What advice would you give to entrepreneurs considering using outside funding?
First of all, be perseverant in gathering the funds. Try many investors, if you get a ‘no’ and the door slams in your face, then try the windows! Then, if you manage to get interested investors, and even if getting there was already hard, don't give away large share of your company (and your work) for low prices. It is sometimes better to be patient and to keep trying rather than getting stuck in the first bad deal you managed to obtain.