January 28, 2025 • 18 mins
Thinking about VC funding for your startup? Before you make the leap, ask yourself these 5 crucial questions to see if venture capital is the right move for your business.
In this video, you'll discover:
- Is your business scalable enough for VCs?
- Do you need rapid growth or steady profits?
- Are you ready to give up equity and control?
- Can you handle the pressure of scaling fast?
- Have you explored alternative funding options?
Venture capital can fuel massive growth, but it comes with trade-offs. In this video, Yvonne and Maria break down the pros and cons so you can make an informed decision and choose the right funding path for your startup's success.
Chapters:
01:22 The Dilemma of Seeking VC Funding
02:39 Understanding Venture Capital
03:29 Key Questions Before Taking VC Funding
04:22 Real-Life Examples of VC Decisions
05:42 Considering Equity Dilution
10:22 Alternative Funding Options
12:55 Bootstrapping Success Stories
16:12 Recap and Final Thoughts
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
One of the most incredible capital sources is revenue.
(00:03):
Why? It is non-dilutive.
It's also a validation that your customers value what you're providing.
If we look at Shopify, would you believe that they actually began as an online store selling snowboarding equipment?
Many startups in the world today, at their later stages, have founders who own only single digits of the business.
Melanie Perkins of Canva or the founder of Stitch Fix, Katrina, they own around 16-10%.
(00:29):
This is actually a healthy amount of equities to own for your business at a later stage.
Have you ever heard of Shagon Utanala, founder of FFB Brands?
He raised a small angel round in the early days.
He chose not to raise any more additional venture capital funding until he raised a growth round of 20 million.
He went on to sell his company to KKR for...
(00:50):
Welcome to The Startup Leap, the number one podcast interviewing startup founders who have taken the leap.
On The Startup Leap, we hear real, raw and relatable stories of how they've navigated taking the leap.
We're your hosts.
I'm Yvonne.
And I'm Maria.
And this is The Startup Leap podcast.
Any statements made by Maria, Yvonne or the Startup Leap guests are solely their view and are not advice.
(01:14):
Welcome back to another episode of The Startup Leap podcast where we share real stories and real lessons with founders who have taken the leap.
I'm Maria.
And I'm Yvonne. And today we're diving into a very common dilemma with startup founders, whether or not to seek VC funding.
Now, VC funding isn't for every business.
It's not a fit for every business model.
(01:36):
And in this episode, we'll be digging into how to think about whether or not to accept VC funding or also even whether or not to accept outside equity capital in general.
Now, this isn't just for first time founders.
Although this will be a great resource for first time founders, as investors, we're also seeing a lot of experienced founders begin to think deeply about whether they want to raise VC funding or not, or at least raising from the very beginning.
(02:03):
Yeah. So if you're thinking about fundraising or evaluating VC as a potential capital source, this video may actually have something to offer you.
So you may be wondering, why are we speaking about this?
If this is your first time, great question.
Welcome.
Maria and I are early stage investors and we've evaluated thousands of startups across Europe and Africa and invested over $200 million in companies today.
(02:29):
Now, at the end of this video, we are sure you are going to live with some new information that you probably didn't know before, but might aid your decision on whether or not to take VC funding.
Now, let's get into it.
What exactly is VC and how does it work?
Now, these are essentially financial institutions that invest in companies to create returns for their original investors.
(02:49):
Imagine a business owner who started maybe a bakery or a coffee shop and they realized that things are going well, but they just need more money to grow their business.
They need more money to get customers.
They need more money to hire really smart people.
They know that that business is scalable.
They know that they can capture the market, but they simply don't have the capital for it.
(03:10):
This is where VC comes in because they come in very early.
They give you cash, but it has expectations.
They say we give you this money for a piece of your business.
So we're essentially owning the business with you and we're in a partnership of sorts and you can use that capital to grow the business, achieve those ambitious goals and then give them returns.
Now, one of the key questions you might want to ask yourself if you're deciding between whether to take venture capital funding or not is what problem are you solving with the capital that you're raising?
(03:40):
Is it a high growth and massive opportunity with high margins?
When we think about VC backed companies, they are really fast growth companies and a massive market opportunity.
Oftentimes, they are going to be the monopoly within a particular industry.
So is the company tech enabled?
That definitely is a key marker for venture backed companies simply because it will mean for higher margins versus a non-tech enabled business and a common benchmark,
(04:09):
particularly in the early days if it's a B2B SaaS company, for example, is can this company get to $1 million in revenue over the next 12, 18 months?
And can it get to a hundred million in revenues over the next, say, five years?
A really good example is on a previous episode that we did with say founder of Hutch and Pimento.
He shared the story of how with one of his early companies, Hutch, he actually went and raised, had a number of conversations with VCs.
(04:37):
After speaking to VCs, he realized that VC wasn't the path that he wanted to take for that particular business just because it didn't follow that potential trajectory of getting to a hundred million in revenues.
Another great example, because sometimes it may not seem to be a fast growth opportunity to begin with, but as the company develops scales, opportunities may arise.
(04:58):
And so if we look at Shopify, would you believe that they actually began as an online store selling snowboarding equipment?
Crazy.
So crazy.
The founders actually turned the software they had created to run their own store into a scalable platform for other businesses.
And Shopify is a success story that we know it to be today.
Now, another example is also Trilio.
(05:20):
So Trilio started as a consulting business for communication issues.
And then they realized, wait, we actually could build a business that helps other business solve these communication issues.
So like Yvonne said, it might start off as a company that seems small or seems like a limited scope, but you could actually grow from there into a venture backable business.
(05:43):
Now, one other question that's important to ask is, are you okay with diluting equity and sharing decision making power?
This one is very important because it's natural to have an attachment to your business as a founder.
But if you are trying to scale your vision with external capital, this infers that you are bringing external co-owners on board.
(06:04):
And it means that you will have to concede some of those decision making rights.
And this is common, especially VC backed businesses that raise multiple rounds of funding because with each round of funding, you're going to be diluted in your ownership because each round is essentially you selling a piece of your company for cash and giving away equity.
Now, this isn't always a bad thing.
(06:25):
Many startups in the world today at their later stages, close to IPO, even at IPO have founders who own only single digits of the business.
Google's Larry and Sergey, they own only a little bit over 11% of the company.
Those were the founders. Melanie Perkins of Canva or the founder of Stitch Fix, Katrina, they own around 16, 10%.
(06:48):
This is actually a healthy amount of equity to own for your business at a later stage.
So just to give you a sense that the more you raise VC funding, the more you actually don't own a huge part of your business.
And this can have, you know, pros and cons.
The pros there is you've been able to sell pieces of your company to give you capital to supercharge your outcomes.
The cons in a sense is that you actually could be fired from your company or pressured to resign at the later stages because at the later stages, you don't own majority of the company anymore.
(07:17):
And the board reports to the shareholders and the board can fire the CEO, which is often the founder of the company.
So if you think about this, we've had examples in the past like Steve Jobs.
He ran Apple for nine years after which there was conflict within the company and the board of directors and strategic focus going forward.
And he stepped down. The same thing happened to Travis Kalanick of Uber.
(07:39):
So this is not uncommon, but it's just two sides to a coin, something to think about.
As you think about all of this, also remember, 100% of nothing is less than a small percentage of a large company.
So it's all about trade-offs. That is so true.
And just to add to that, coming back to decision making and whether you want to give away complete decision making in the early days.
Have you ever heard of Shagon Utanala, an incredible founder of FFB Brands?
(08:03):
Now he raised a very small angel round in the early days, 250k to start his business.
Over five years, he chose not to raise any more additional venture capital funding until he raised a growth round of 20 million.
He went on to sell his company to KKR for $1.25 billion.
Now, the reason why I wanted to flag his story is because sometimes it may be that you don't want to give up full control of the business in the early days.
(08:31):
But as the business grows and scales, you may feel that it's appropriate later on down the line. And that's OK.
And whether or not you are VC backed or not, being capital efficient really helps you in the earlier stages,
especially because you take that going forward and you can limit dilution, but not trade-off on growth.
Now, the next thing that we want to touch on is whether you could actually generate the type of returns that venture investors actually require.
(08:57):
Let's put it into perspective. A seed stage investor typically looks for companies to generate an 100x return.
So if I invest $1 million into your company, I'm expecting $100 million as an outcome when you achieve that liquidation point.
And the ideal liquidation event would be an IPO or an acquisition by a larger company.
(09:21):
And so the quick question is, is that something that you want? And is this something that you truly believe you can achieve?
What this typically means is that you will need to build a business that can generate a value of at least $1 billion.
Now, I think founders really have to be honest with their sales and really think about whether that's something they can truly achieve and what does it take to truly get there.
(09:42):
And if that's not the case, that is absolutely fine. You can still generate wealth and a really great outcome for yourself.
Let's take Tim, for example, in one of our earlier episodes, Tim Armu shared how he very intentionally decided not to raise venture capital funding
and he still generated an eight-figure exit for himself and a very incredible return for his angel investors as well.
(10:05):
Yeah, absolutely. I think success is measured many different ways.
Remember, these are just points for you to think about how you consider VC funding, not necessarily to encourage or dissuade you either way.
It's just important to have all the cards on the table and then you can make a decision.
Now, onto another thing to consider. Have you considered other alternatives to venture capital?
(10:25):
Oftentimes, people just think, oh, I have a startup idea. It seems to have some initial market traction. I should raise VC.
I would say pause. One of the most incredible capital sources is actually revenue.
Why? It is non-dilutive and it's also a validation that your customers value what you are providing.
It also helps you unlock potential revenue-based financing.
(10:46):
So I would say consider other options. Revenue is one. Your customers, you know, coins are better than investor dollars because investor dollars are very expensive.
But we understand the limitations of customer revenue in the early stages and it might not be large enough for you to have a good runway to really target the market.
But don't knock it. One of our episodes with Carmel Cadet of M-Tech, she had a half a million dollar pilot contract.
(11:12):
That is the size of thumb precede round these days. So it is important to consider revenue.
Other things you can consider are essentially crowdfunding. So crowdfunding is a common option, but not everyone really thinks about it as a viable option.
One of our guests on our episodes, Go Henry's Louise Hill,
she actually raised crowdfunding and this is essentially like the name implies the crowd gives you money, but they don't give you money directly.
(11:37):
There's often an intermediary regulated platform that facilitates the conversation, but you do need to,
they are investors and you do need to pitch and get them on board. So that's one other way.
The other thing that I would say is even in the venture capital, you know, ish
funding source is angel investments and then family offices. Now angel investments,
(12:01):
it sounds fancy, but it's essentially anybody, you know, who has money and will give you money to invest in your business for a lucrative exit,
you know, at the end. But the different thing angel investments is they might not be expecting that billion dollar outcome.
A moderate exit is good for them. So if you can pretty much paint that picture, it might help.
I would say that for the family offices, this is similar to angel investments because they tend to be family offices of people who have had wealth
(12:28):
in maybe entrepreneurship activities or commercial activities. So they're internal, you know, family VCs, you can call them,
but they are often not as institutionalized as traditional VCs and they might be okay with some moderate returns.
So these are all the other options to consider. We're very well aware that in the early stages,
it's hard to unlock things like revenue-based financing or debts because you're just getting started.
(12:50):
So we understand that that's difficult, but there's many other ways you can slice and dice this.
I love that. And one example that comes to mind is actually Canley.
Now, I'm sure every single one of our listeners is familiar with Canley or at some point use Canley.
Tapio Wontonna, the founder of Canley, actually bootstrapped his business in the initial stages where he invested 200,000 K of his own money.
(13:13):
And he really used that to build and scale the business up until the point where he was generating tens of millions of dollars in revenue.
And he raised a 350 million rounds. Even if you do choose to bootstrap, you can still achieve great scale.
Today, the company's valued at over 3 billion dollars.
So definitely consider alternative means as well if that's a potential option for you.
(13:36):
Absolutely. And this brings to mind the fact that we had an episode with Sabrina and she built a financial
red tech company that helps bank comply with product management and, you know, regulated areas.
And she didn't raise a single penny in VC funding. She targeted with angels.
She got grants. She got funding from co-workers that she had worked in the past,
(13:59):
bosses she had worked with, and even some family office type arrangements.
So there are other ways to consider, you know, bootstrapping taking a while before you go into VC,
especially if you can't raise VC funding when it's difficult anyways.
It doesn't mean that there isn't success there. There are many people who have done it.
But to be honest, it's harder because you have less capital. It's probably longer.
(14:19):
You probably won't grow as much, but success is measured many different ways.
So, yeah, that's one way to think about it.
So that's our five points.
Are you ready for an exhilarating and potentially rewarding journey over the next five years?
Five to ten years if you choose to take the venture capital route.
It can be intense. It can be emotionally, physically, psychologically, a bit of a road.
(14:45):
Rapid changes, constantly having to, you know, make improvements.
But if you're looking to build a massive business that will achieve like a generational outcome,
then VC is the one to consider.
Absolutely. It's rewarding to see your impact across the world.
Many VC-backed companies have influenced the way we live.
(15:06):
Imagine a world without maybe Uber or Amazon or all these tech companies.
They have influenced the way we live.
So there is potential that maybe something you're building can do the same.
The other thing I will say is because of the nature of VC,
you tend to need to raise rounds every couple of years.
It's just the nature of the asset class.
And it's not because you're not in sustainable business.
Many people who raise rounds in VC are generating revenue.
(15:30):
But because these growth outcomes and milestones are so ambitious,
they tend to always need funding to hit that next aggressive milestone.
So if you aren't psychologically ready or you don't believe that you want to go through that in the next five to ten years,
some people consider it a challenge.
I would say be prepared for that roller coaster.
(15:51):
It can be exhausting, but it can also be exhilarating.
But whatever it is, choose which one works for you.
Success is measured many different ways.
Absolutely. And with the advances in AI,
the cost of building a business is becoming significantly cheaper as well.
So those are five different ways to think about whether or not you want to consider VC funding.
(16:12):
So just to recap, first, what is VC?
Someone gave a company a pot of money to invest in startups and they're expecting returns.
So the outcome has to be large.
Many times they have many portfolios and they want one to succeed so that it can return the portfolio.
So the outcomes are quite massive.
Two, what problem are you solving with this capital?
Is it big enough? Is it ambitious enough?
(16:35):
Can it realistically give those returns that you believe will make it worthwhile for the investors?
Three, are you okay with diluting equity and sharing decision making power?
A hundred percent of nothing is less than 10 percent of a large business.
As you think of VC, you are also conceding some powers and you're also choosing accountability
(16:56):
and working with external parties to achieve a larger vision.
Four, can you provide a lucrative exit?
As VCs invest, they're also thinking about when they get out of that investment in multiple folds.
So is there an avenue within the business model that you've chosen for them to be able to do that?
It helps if there is. If there isn't, maybe VC isn't the one for you.
(17:17):
Maybe you can build a strong solid business that gives some angel investors dividends or something.
And five, have you explored other options aside from VC?
VC is often the first thing people think about, but is it the best thing?
Have you considered revenue based financing? Have you considered grants?
Have you considered angel funding, family offices, crowdfunding?
(17:38):
Check all of these out because we have episodes that have touched on many of those.
And of course, it's going to be an exhilarating experience.
Either way, if you decide whether or not to go through via VC or not via VC,
we hope that we've been able to give you some things to think about as you make the decision.
Thank you for joining us today. Tell us what you think in the comments.
(17:58):
We would love to hear how you're thinking about these things.
Let's keep the conversation going. See you next time.
See you next time. Bye bye.
Leave a review. Tell us what you think of this episode on all of our platforms at the Startup Leap pod.
Do you have a question? Ask us and we'll ask our guests. Go to the startupleap.io. See you next time.
One of the most incredible capital sources is revenue.
(00:03):
Why? It is non-dilutive.
It's also a validation that your customers value what you're providing.
If we look at Shopify, would you believe that they actually began as an online store selling snowboarding equipment?
Many startups in the world today, at their later stages, have founders who own only single digits of the business.
Melanie Perkins of Canva or the founder of Stitch Fix, Katrina, they own around 16-10%.
(00:29):
This is actually a healthy amount of equities to own for your business at a later stage.
Have you ever heard of Shagon Utanala, founder of FFB Brands?
He raised a small angel round in the early days.
He chose not to raise any more additional venture capital funding until he raised a growth round of 20 million.
He went on to sell his company to KKR for...
(00:50):
Welcome to The Startup Leap, the number one podcast interviewing startup founders who have taken the leap.
On The Startup Leap, we hear real, raw and relatable stories of how they've navigated taking the leap.
We're your hosts.
I'm Yvonne.
And I'm Maria.
And this is The Startup Leap podcast.
Any statements made by Maria, Yvonne or the Startup Leap guests are solely their view and are not advice.
(01:14):
Welcome back to another episode of The Startup Leap podcast where we share real stories and real lessons with founders who have taken the leap.
I'm Maria.
And I'm Yvonne. And today we're diving into a very common dilemma with startup founders, whether or not to seek VC funding.
Now, VC funding isn't for every business.
It's not a fit for every business model.
(01:36):
And in this episode, we'll be digging into how to think about whether or not to accept VC funding or also even whether or not to accept outside equity capital in general.
Now, this isn't just for first time founders.
Although this will be a great resource for first time founders, as investors, we're also seeing a lot of experienced founders begin to think deeply about whether they want to raise VC funding or not, or at least raising from the very beginning.
(02:03):
Yeah. So if you're thinking about fundraising or evaluating VC as a potential capital source, this video may actually have something to offer you.
So you may be wondering, why are we speaking about this?
If this is your first time, great question.
Welcome.
Maria and I are early stage investors and we've evaluated thousands of startups across Europe and Africa and invested over $200 million in companies today.
(02:29):
Now, at the end of this video, we are sure you are going to live with some new information that you probably didn't know before, but might aid your decision on whether or not to take VC funding.
Now, let's get into it.
What exactly is VC and how does it work?
Now, these are essentially financial institutions that invest in companies to create returns for their original investors.
(02:49):
Imagine a business owner who started maybe a bakery or a coffee shop and they realized that things are going well, but they just need more money to grow their business.
They need more money to get customers.
They need more money to hire really smart people.
They know that that business is scalable.
They know that they can capture the market, but they simply don't have the capital for it.
(03:10):
This is where VC comes in because they come in very early.
They give you cash, but it has expectations.
They say we give you this money for a piece of your business.
So we're essentially owning the business with you and we're in a partnership of sorts and you can use that capital to grow the business, achieve those ambitious goals and then give them returns.
Now, one of the key questions you might want to ask yourself if you're deciding between whether to take venture capital funding or not is what problem are you solving with the capital that you're raising?
(03:40):
Is it a high growth and massive opportunity with high margins?
When we think about VC backed companies, they are really fast growth companies and a massive market opportunity.
Oftentimes, they are going to be the monopoly within a particular industry.
So is the company tech enabled?
That definitely is a key marker for venture backed companies simply because it will mean for higher margins versus a non-tech enabled business and a common benchmark,
(04:09):
particularly in the early days if it's a B2B SaaS company, for example, is can this company get to $1 million in revenue over the next 12, 18 months?
And can it get to a hundred million in revenues over the next, say, five years?
A really good example is on a previous episode that we did with say founder of Hutch and Pimento.
He shared the story of how with one of his early companies, Hutch, he actually went and raised, had a number of conversations with VCs.
(04:37):
After speaking to VCs, he realized that VC wasn't the path that he wanted to take for that particular business just because it didn't follow that potential trajectory of getting to a hundred million in revenues.
Another great example, because sometimes it may not seem to be a fast growth opportunity to begin with, but as the company develops scales, opportunities may arise.
(04:58):
And so if we look at Shopify, would you believe that they actually began as an online store selling snowboarding equipment?
Crazy.
So crazy.
The founders actually turned the software they had created to run their own store into a scalable platform for other businesses.
And Shopify is a success story that we know it to be today.
Now, another example is also Trilio.
(05:20):
So Trilio started as a consulting business for communication issues.
And then they realized, wait, we actually could build a business that helps other business solve these communication issues.
So like Yvonne said, it might start off as a company that seems small or seems like a limited scope, but you could actually grow from there into a venture backable business.
(05:43):
Now, one other question that's important to ask is, are you okay with diluting equity and sharing decision making power?
This one is very important because it's natural to have an attachment to your business as a founder.
But if you are trying to scale your vision with external capital, this infers that you are bringing external co-owners on board.
(06:04):
And it means that you will have to concede some of those decision making rights.
And this is common, especially VC backed businesses that raise multiple rounds of funding because with each round of funding, you're going to be diluted in your ownership because each round is essentially you selling a piece of your company for cash and giving away equity.
Now, this isn't always a bad thing.
(06:25):
Many startups in the world today at their later stages, close to IPO, even at IPO have founders who own only single digits of the business.
Google's Larry and Sergey, they own only a little bit over 11% of the company.
Those were the founders. Melanie Perkins of Canva or the founder of Stitch Fix, Katrina, they own around 16, 10%.
(06:48):
This is actually a healthy amount of equity to own for your business at a later stage.
So just to give you a sense that the more you raise VC funding, the more you actually don't own a huge part of your business.
And this can have, you know, pros and cons.
The pros there is you've been able to sell pieces of your company to give you capital to supercharge your outcomes.
The cons in a sense is that you actually could be fired from your company or pressured to resign at the later stages because at the later stages, you don't own majority of the company anymore.
(07:17):
And the board reports to the shareholders and the board can fire the CEO, which is often the founder of the company.
So if you think about this, we've had examples in the past like Steve Jobs.
He ran Apple for nine years after which there was conflict within the company and the board of directors and strategic focus going forward.
And he stepped down. The same thing happened to Travis Kalanick of Uber.
(07:39):
So this is not uncommon, but it's just two sides to a coin, something to think about.
As you think about all of this, also remember, 100% of nothing is less than a small percentage of a large company.
So it's all about trade-offs. That is so true.
And just to add to that, coming back to decision making and whether you want to give away complete decision making in the early days.
Have you ever heard of Shagon Utanala, an incredible founder of FFB Brands?
(08:03):
Now he raised a very small angel round in the early days, 250k to start his business.
Over five years, he chose not to raise any more additional venture capital funding until he raised a growth round of 20 million.
He went on to sell his company to KKR for $1.25 billion.
Now, the reason why I wanted to flag his story is because sometimes it may be that you don't want to give up full control of the business in the early days.
(08:31):
But as the business grows and scales, you may feel that it's appropriate later on down the line. And that's OK.
And whether or not you are VC backed or not, being capital efficient really helps you in the earlier stages,
especially because you take that going forward and you can limit dilution, but not trade-off on growth.
Now, the next thing that we want to touch on is whether you could actually generate the type of returns that venture investors actually require.
(08:57):
Let's put it into perspective. A seed stage investor typically looks for companies to generate an 100x return.
So if I invest $1 million into your company, I'm expecting $100 million as an outcome when you achieve that liquidation point.
And the ideal liquidation event would be an IPO or an acquisition by a larger company.
(09:21):
And so the quick question is, is that something that you want? And is this something that you truly believe you can achieve?
What this typically means is that you will need to build a business that can generate a value of at least $1 billion.
Now, I think founders really have to be honest with their sales and really think about whether that's something they can truly achieve and what does it take to truly get there.
(09:42):
And if that's not the case, that is absolutely fine. You can still generate wealth and a really great outcome for yourself.
Let's take Tim, for example, in one of our earlier episodes, Tim Armu shared how he very intentionally decided not to raise venture capital funding
and he still generated an eight-figure exit for himself and a very incredible return for his angel investors as well.
(10:05):
Yeah, absolutely. I think success is measured many different ways.
Remember, these are just points for you to think about how you consider VC funding, not necessarily to encourage or dissuade you either way.
It's just important to have all the cards on the table and then you can make a decision.
Now, onto another thing to consider. Have you considered other alternatives to venture capital?
(10:25):
Oftentimes, people just think, oh, I have a startup idea. It seems to have some initial market traction. I should raise VC.
I would say pause. One of the most incredible capital sources is actually revenue.
Why? It is non-dilutive and it's also a validation that your customers value what you are providing.
It also helps you unlock potential revenue-based financing.
(10:46):
So I would say consider other options. Revenue is one. Your customers, you know, coins are better than investor dollars because investor dollars are very expensive.
But we understand the limitations of customer revenue in the early stages and it might not be large enough for you to have a good runway to really target the market.
But don't knock it. One of our episodes with Carmel Cadet of M-Tech, she had a half a million dollar pilot contract.
(11:12):
That is the size of thumb precede round these days. So it is important to consider revenue.
Other things you can consider are essentially crowdfunding. So crowdfunding is a common option, but not everyone really thinks about it as a viable option.
One of our guests on our episodes, Go Henry's Louise Hill,
she actually raised crowdfunding and this is essentially like the name implies the crowd gives you money, but they don't give you money directly.
(11:37):
There's often an intermediary regulated platform that facilitates the conversation, but you do need to,
they are investors and you do need to pitch and get them on board. So that's one other way.
The other thing that I would say is even in the venture capital, you know, ish
funding source is angel investments and then family offices. Now angel investments,
(12:01):
it sounds fancy, but it's essentially anybody, you know, who has money and will give you money to invest in your business for a lucrative exit,
you know, at the end. But the different thing angel investments is they might not be expecting that billion dollar outcome.
A moderate exit is good for them. So if you can pretty much paint that picture, it might help.
I would say that for the family offices, this is similar to angel investments because they tend to be family offices of people who have had wealth
(12:28):
in maybe entrepreneurship activities or commercial activities. So they're internal, you know, family VCs, you can call them,
but they are often not as institutionalized as traditional VCs and they might be okay with some moderate returns.
So these are all the other options to consider. We're very well aware that in the early stages,
it's hard to unlock things like revenue-based financing or debts because you're just getting started.
(12:50):
So we understand that that's difficult, but there's many other ways you can slice and dice this.
I love that. And one example that comes to mind is actually Canley.
Now, I'm sure every single one of our listeners is familiar with Canley or at some point use Canley.
Tapio Wontonna, the founder of Canley, actually bootstrapped his business in the initial stages where he invested 200,000 K of his own money.
(13:13):
And he really used that to build and scale the business up until the point where he was generating tens of millions of dollars in revenue.
And he raised a 350 million rounds. Even if you do choose to bootstrap, you can still achieve great scale.
Today, the company's valued at over 3 billion dollars.
So definitely consider alternative means as well if that's a potential option for you.
(13:36):
Absolutely. And this brings to mind the fact that we had an episode with Sabrina and she built a financial
red tech company that helps bank comply with product management and, you know, regulated areas.
And she didn't raise a single penny in VC funding. She targeted with angels.
She got grants. She got funding from co-workers that she had worked in the past,
(13:59):
bosses she had worked with, and even some family office type arrangements.
So there are other ways to consider, you know, bootstrapping taking a while before you go into VC,
especially if you can't raise VC funding when it's difficult anyways.
It doesn't mean that there isn't success there. There are many people who have done it.
But to be honest, it's harder because you have less capital. It's probably longer.
(14:19):
You probably won't grow as much, but success is measured many different ways.
So, yeah, that's one way to think about it.
So that's our five points.
Are you ready for an exhilarating and potentially rewarding journey over the next five years?
Five to ten years if you choose to take the venture capital route.
It can be intense. It can be emotionally, physically, psychologically, a bit of a road.
(14:45):
Rapid changes, constantly having to, you know, make improvements.
But if you're looking to build a massive business that will achieve like a generational outcome,
then VC is the one to consider.
Absolutely. It's rewarding to see your impact across the world.
Many VC-backed companies have influenced the way we live.
(15:06):
Imagine a world without maybe Uber or Amazon or all these tech companies.
They have influenced the way we live.
So there is potential that maybe something you're building can do the same.
The other thing I will say is because of the nature of VC,
you tend to need to raise rounds every couple of years.
It's just the nature of the asset class.
And it's not because you're not in sustainable business.
Many people who raise rounds in VC are generating revenue.
(15:30):
But because these growth outcomes and milestones are so ambitious,
they tend to always need funding to hit that next aggressive milestone.
So if you aren't psychologically ready or you don't believe that you want to go through that in the next five to ten years,
some people consider it a challenge.
I would say be prepared for that roller coaster.
(15:51):
It can be exhausting, but it can also be exhilarating.
But whatever it is, choose which one works for you.
Success is measured many different ways.
Absolutely. And with the advances in AI,
the cost of building a business is becoming significantly cheaper as well.
So those are five different ways to think about whether or not you want to consider VC funding.
(16:12):
So just to recap, first, what is VC?
Someone gave a company a pot of money to invest in startups and they're expecting returns.
So the outcome has to be large.
Many times they have many portfolios and they want one to succeed so that it can return the portfolio.
So the outcomes are quite massive.
Two, what problem are you solving with this capital?
Is it big enough? Is it ambitious enough?
(16:35):
Can it realistically give those returns that you believe will make it worthwhile for the investors?
Three, are you okay with diluting equity and sharing decision making power?
A hundred percent of nothing is less than 10 percent of a large business.
As you think of VC, you are also conceding some powers and you're also choosing accountability
(16:56):
and working with external parties to achieve a larger vision.
Four, can you provide a lucrative exit?
As VCs invest, they're also thinking about when they get out of that investment in multiple folds.
So is there an avenue within the business model that you've chosen for them to be able to do that?
It helps if there is. If there isn't, maybe VC isn't the one for you.
(17:17):
Maybe you can build a strong solid business that gives some angel investors dividends or something.
And five, have you explored other options aside from VC?
VC is often the first thing people think about, but is it the best thing?
Have you considered revenue based financing? Have you considered grants?
Have you considered angel funding, family offices, crowdfunding?
(17:38):
Check all of these out because we have episodes that have touched on many of those.
And of course, it's going to be an exhilarating experience.
Either way, if you decide whether or not to go through via VC or not via VC,
we hope that we've been able to give you some things to think about as you make the decision.
Thank you for joining us today. Tell us what you think in the comments.
(17:58):
We would love to hear how you're thinking about these things.
Let's keep the conversation going. See you next time.
See you next time. Bye bye.
Leave a review. Tell us what you think of this episode on all of our platforms at the Startup Leap pod.
Do you have a question? Ask us and we'll ask our guests. Go to the startupleap.io. See you next time.
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