Lean vs. Funded

Posted on Posted in Investing, Mentoring

What’s best for a startup? To relinquish equity for the security of drawing a pay cheque or Keeping 100% of a project you know is going stratospheric and will make you a billionaire.

I have noticed a trend recently that more and more founders are viewing the startup community as an employer and starting companies as a paid job. As an old school entrepreneur, I find this puzzling! If you want a pay cheque, get a job. If you want to start your own company, save enough money to live on for a while and devote at least 2 years of your life to creating your own business which will serve well your emotional and financial needs for the remainder of your life. Raise money only if needed by the business.

I have a colleague who formed a breakaway startup and successfully raised a 6 figure sum to fund his new business. He is now using that money to pay himself a salary while the business runs on very lean financing. I find that very alien to my mind set and cannot bring myself to fund projects like this.

Am I wrong?

I am probably seeing the evolution of tech startups and am not adapting to the new model. Perhaps a view such as R&D funding should be applied. Any large company at the cutting edge of its industry spends a significant amount on R&D which has a variable chance of success. This is considered essential for the continued growth of any large business. Perhaps this new trend in the startup space is a natural extension of the R&D model and the entrepreneurs that engage in this should be salaried to fulfil this role.

For you, the entrepreneur, I cannot bring myself to fund your salary. However, I know others in the investment community that can and do. So, in short, if you intend to make your career starting and exiting serial businesses, it is a viable choice. For me, however, I still believe in the entrepreneur that wants to spend his life and passion working in the business they founded.

If my theory is true, I hope I can adapt my philosophy to embrace this new type of business. I don’t want to become a dinosaur.

 

Next Time: Accelerators – do they work?

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