"You're Too Early for Us"

I think every venture capitalist (VC) on the planet has said this to me at this point. Most have told me that my basic idea is interesting but ultimately, they have no numbers to go on at this point so they cannot justify giving us the seed funding we need to get off the ground (granted it doesn't help that the markets are tanking right now over fears of Europe. As of this writing the DOW is down 363 points three hours into the trading day). This is the first big struggle every entrepreneur will meet, even those with brilliant ideas. Investors are inherently risk-averse and there is a lot of risk in handing $150,000 to an entrepreneur and saying "OK, now go make something." Ultimately, an entrepreneur's best bet to get seed funding is by either providing it themselves or finding a rich family member or friend who is willing to give you some money.


If possible, I believe that entrepreneurs should provide this seed funding themselves. Most deals for seed funding are horribly lopsided; 15% ownership for $150,000 is a pretty standard agreement. If you put your own money into your venture, you show future VCs that you are committed to the project (because an investor's greatest fear is putting up money and then watching the founder walk away) and you retain a significant amount of equity in the company. When your company is nothing but an idea, the difference between 65% ownership and 50% ownership seems worth the sacrifice in order to get it off the ground. But if you become successful and bring home say $1 million in profits, that difference becomes a much bigger deal. Your near-term interests are hampering your long term profitability.

However, there is significant and fairly obvious downside to funding a venture yourself. $150k in the greater context of a company's operations over time is not an earth-shattering amount of money but $150k to you, the individual is. Which is why if you are considering funding your own venture (and even if you are not), you absolutely must look at it from two perspectives: as the founder and the VC. As a founder, you are inherently optimistic because you would not be attempting to create a company if you did not believe in your idea. VC you has to take an unbiased look at the project and ask some questions of it: If you were a competitor how would you attack your business? Are there any structural issues to your overall plan? If so, how are you going to deal with them? What is the barrier to entry for what you are doing and how do you protect yourself from future competitors?

Anyway, this is what I have learned in my limited time as an entrepreneur. It's hard, and it will become much more difficult in the coming days, more difficult than you can realistically fathom. The best things that you as an entrepreneur can do is to stay positive, stay realistic, and fasten your seat belt for the long ride ahead.