Entrepreneurs and Angel investors!

HakanHakan Posts: 2subscriber
edited December 2016 in Startup Funding
- I am currently taking a class from London Business School - I would like you to share your opinion about the following topic with me at least with a few sentences
- What are the advantages and disadvantages of taking VC or angel money before you have paying customers.

Thanks

Comments

  • Gregory101Gregory101 JacksonvillePosts: 51subscriber Bronze Level Member
    Advantages of raising early institutional money:

    You are well-capitalized from the start, so you can hire people and grow faster, possibly taking advantage of a favorable business climate or marketing opportunity while it still exists, and gaining an early advantage over competition.
    The credibility and social proof of being funded means people will take you more seriously: it will be easier to hire people, get introductions, and make strategic transactions.
    The investors may work for your success, making introductions and arranging deals.
    Oversight by experienced, active investors forces the company to work hard and stay disciplined, adopting and sticking to budgets, keeping records, taking care of company housekeeping.
    Disadvantages of early institutional money:

    Raising money at an early stage while the valuation is low and investors have all the negotiating leverage means giving up more ownership and control than if the company could have waited.
    Early loss of control, and answering to investors, could thwart the founding team's initial vision. This could be good or bad.
    Very early stage investors may not have the resources or connections to do larger funding rounds in the future that the company may need, so the company may need to go through it all again later.
    Companies often do best when lean or hungry. Even when fully funded, they should watch every dollar, and make every decision count. Companies that go through lean times at the beginning tend to be more disciplined, and know how to squeeze the most performance from the least resources. Companies that have never faced, and then internalized, fiscal responsibilities, tend to be less efficient. In other words, no pain, no gain.
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